52 MCQ The accountant at Landry Company is figuring out

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Question 1


The accountant at Landry Company is figuring out the difference in income taxes the company will pay depending on the choice of either FIFO or LIFO as an inventory costing method. The tax rate is 30% and the FIFO method will result in income before taxes of $8,740. The LIFO method will result in income before taxes of $7,900. What is the difference in tax that would be paid between the two methods?
Answer

$840

$588

$252

Cannot be determined from the information provided.

2 points
Question 2


At May 1, 2012, Heineken Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7
300 units at $8
The company sold 500 units during the month for $12 per unit. Heineken uses the average cost method. The value of Heineken's inventory at May 31, 2012 is
Answer

$700

$750

$800

$4,500

2 points
Question 3


At May 1, 2012, Heineken Company had beginning inventory consisting of 100 units with a unit cost of $7. During May, the company purchased inventory as follows:
200 units at $7
300 units at $8
The company sold 500 units during the month for $12 per unit. Heineken uses the average cost method. The average cost per unit for May is
Answer

$7.00.

$7.50.

$7.60.

$8.00.

2 points
Question 4


Which of the following terms best describes the assumption made in applying the four inventory methods?
Answer

Goods flow

Cost flow

Asset flow

Physical flow

2 points
Question 5


Classic Floors has the following inventory data:


July 1 Beginning Inventory 15 units at $8.00
July 5 Purchases 60 units at $8.80
July 14 Sale 40 units
July 21 Purchases 30 units $9.60
July 30 Sale 28 units

Assuming that a perpetual inventory system is used, what is the cost of goods sold on a LIFO basis for July?
Answer

$620.80

$315.20

$936.00

$464.00

2 points
Question 6


The specific identification method of inventory costing
Answer

always maximizes a company's net income.

always minimizes a company's net income.

has no effect on a company's net income.

may enable management to manipulate net income.

2 points
Question 7


Piper Pipes has the following inventory data:

July 1 Beginning inventory 20 units at $120
July 5 Purchases 120 units at $112
July 14 Sale 80 units
July 21 Purchases 60 units at $115
July 30 Sale 56 units

Assuming that a periodic inventory system is used, what is the cost of goods sold on a LIFO basis.
Answer

$7,328

$7,348

$15,392.

$15,412

2 points
Question 8


Selection of an inventory costing method by management does not usually depend on
Answer

the fiscal year end.

income statement effects.

balance sheet effects.

tax effects.

2 points
Question 9


Goods held on consignment are
Answer

never owned by the consignee.

included in the consignee's ending inventory.

kept for sale on the premises of the consignor.

included as part of no one's ending inventory.

2 points
Question 10


Which inventory costing method should a gasoline retailer use?
Answer

Average cost

LIFO

FIFO

Either LIFO or FIFO.

2 points
Question 11


Which of the following companies would most likely have the highest inventory turnover?
Answer

An art gallery.

An automobile manufacturer.

A piano manufacturer.

A bakery.

2 points
Question 12


Butler Company reported ending inventory at December 31, 2012 of $1,200,000 under LIFO. It also reported a LIFO reserve of $210,000 at January 1, 2012, and $300,000 at December 31, 2012. Cost of goods sold for 2012 was $4,100,000. If Butler Company had used FIFO during 2012, its cost of goods sold for 2012 would have been
Answer

$4,400,000.

$4,190,000.

$4,010,000.

$3,800,000.

2 points
Question 13


A company just starting in business purchased three merchandise inventory items at the following prices. First purchase $80; Second purchase $95; Third purchase $85. If the company sold two units for a total of $240 and used FIFO costing, the gross profit for the period would be
Answer

$65.

$75.

$60.

$50.

2 points
Question 14



Dobler Company uses a periodic inventory system.





























Units	Per Unit Price	Total
Balance, 1/1/2012	200	$5.00	$1,000
Purchase, 1/15/2012	100	$5.30	$530
Purchase, 1/28/2012	100	$5.50	$550



Details for the inventory account for the month of January 2012 are as follows: An end of the month (1/31/2012) inventory showed that 140 units were on hand. If the company uses LIFO, what is the value of the ending inventory?



Answer

















$737




$700




$762




$1,380






2 points



Question 15







Dole Industries had the following inventory transactions occur during 2012:




























Units	Cost/Unit
Feb.1, 2012	Purchase	54	$90
Mar. 14, 2012	Purchase	93	$94
May 1, 2012	Purchase	66	$98



The company sold 153 units at $126 each and has a tax rate of 30%. Assuming that a periodic inventory system is used, and operating expenses of $2,000, what is the company's after-tax income using LIFO? (rounded to whole dollars)




Answer


















$2,632






$3,242






$2,162






$1,842







2 points



Question 16





Which statement regarding negative cash balances is true?


Answer
















The amount is offset against other current assets because users need to know net current assets.


The amount is shown as a current liability because a company cannot have a cash balance below zero.


The company must obtain a loan to bring the cash balance to zero before financial statements are prepared.


The negative cash balance is included as a current asset and discussed in a footnote to the financial statements.





2 points



Question 17





Internal auditors


Answer
















are hired by CPA firms to audit business firms.


are employees of the IRS who evaluate the internal controls of companies filing tax returns.


evaluate the system of internal controls for the companies that employ them.


cannot evaluate the system of internal controls of the company that employs them because they are not independent.





2 points



Question 18





Collier Company has implemented a just-in-time system, which relies on suppliers to deliver goods for resale as needed. This implementation is most consistent with which of the following basic principles of cash management?


Answer
















Increasing the speed of receivables collection.


Planning the timing of major expenditures.


Keeping inventory levels low.


Delaying the payment of liabilities.





2 points



Question 19





Entries are made to the Petty Cash account when


Answer
















establishing the fund.


making payments out of the fund.


recording shortages in the fund.


replenishing the fund.





2 points



Question 20





Internal control is defined, in part, as a plan that safeguards


Answer
















all balance sheet accounts.


assets.


liabilities.


capital stock.





2 points



Question 21





If a check correctly written and paid by the bank for $471 is incorrectly recorded on the company's books for $417, the appropriate treatment on the bank reconciliation would be to


Answer
















add $54 to the book's balance.


subtract $54 from the book's balance.


deduct $54 from the bank's balance.


deduct $471 from the book's balance.





2 points



Question 22





A credit balance in Cash Over and Short account is shown as


Answer
















an asset.


a liability.


a revenue.


an expense.





2 points



Question 23





Under the allowance method of accounting for bad debts, why must uncollectible accounts receivable be estimated at the end of the accounting period?


Answer
















To allow the collection department to schedule work for the next accounting period.


To determine the gross realizable value of accounts receivable.


The IRS rules require the company to make the estimate.


To match bad debt expense to the period in which the revenues were earned.





2 points



Question 24





In 2012 the Golic Co. had net credit sales of $900,000. On January 1, 2012, the Allowance for Doubtful Accounts had a credit balance of $19,000. During 2012, $36,000 of uncollectible accounts receivable were written off. Past experience indicates that the allowance should be 10% of the balance in receivables (percentage of receivable basis). If the accounts receivable balance at December 31 was $240,000 what is the required adjustment to the Allowance for Doubtful Accounts at December 31, 2012?


Answer
















$24,000.


$41,000.


$43,000.


$36,000.





2 points



Question 25






An analysis and aging of the accounts receivable of Watts Company at December 31 reveal these data: What is the cash realizable value of the accounts receivable at December 31 after adjustment?

Accounts receivable $ 3,200,000

Allowance for doubtful accounts per books before adjustment (credit) 200,000

Amounts expected to become uncollectible 260,000





Answer

















$2,740,000




$3,000,000




$3,200,000




$2,940,000






2 points



Question 26





When the allowance method is used to account for uncollectible accounts, Bad Debts Expense is debited when


Answer
















a sale is made.


an account becomes bad and is written off.


management estimates the amount of uncollectibles.


a customer's account becomes past due.





2 points



Question 27





Using the allowance method, the uncollectible accounts for the year are estimated to be $35,000. If the balance for the Allowance for Doubtful Accounts is a $9,000 credit before adjustment, what is the balance after adjustment?


Answer
















$9,000


$26,000


$35,000


$44,000





2 points



Question 28





The following information is related to December 31, 2011 balances.

Accounts receivable $525,000

Allowance for doubtful accounts (credit) (45,000)

Cash realizable value 480,000



During 2012 sales on account were $145,000 and collections on account were $86,000. Also, during 2012 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding receivable accounts at year end indicated that bad debts should be estimated at $54,000. Bad debt expense for 2012 is:


Answer
















$17,000.


$9,000.


$54,000.


$1,000.





2 points



Question 29





Two methods of accounting for uncollectible accounts are the


Answer
















allowance method and the accrual method.


allowance method and the net realizable method.


direct write-off method and the accrual method.


direct write-off method and the allowance method.





2 points



Question 30





The retailer considers Visa and MasterCard sales as


Answer
















cash sales.


promissory sales.


credit sales.


contingent sales.





2 points



Question 31





An aging of a company's accounts receivable indicates that $4,000 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,600 debit balance, the adjustment to record bad debts for the period will require a


Answer
















debit to Bad Debts Expense for $4,000.


debit to Bad Debt Expense for $5,600.


debit to Bad Debts Expense for $2,400.


credit to Allowance for Doubtful Accounts for $5,000.





2 points



Question 32





When an account is written off using the allowance method, accounts receivable


Answer
















is unchanged and the allowance account increases.


increases and the allowance account increases.


decreases and the allowance account decreases.


decreases and the allowance account increases.





2 points



Question 33





The direct write-off method of accounting for uncollectible accounts


Answer
















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.





2 points



Question 34





Simonic Retailers accepted $75,000 of Citibank Visa credit card charges for merchandise sold on July 1. Citibank charges 4% for its credit card use. The entry to record this transaction by Simonic Retailers will include a credit to Sales of $75,000 and a debit(s) to:


Answer
















Cash $72,000 and Service Charge Expense $3,000.


Accounts Receivable $72,000 and Service Charge Expense $3,000.


Cash $72,000 and Interest Expense $3,000.


Accounts Receivable $75,000.





2 points



Question 35





Research and development costs


Answer
















are classified as intangible assets.


must be expensed when incurred under generally accepted accounting principles.


should be included in the cost of the patent they relate to.


are capitalized and then amortized over a period not to exceed 20 years.





2 points



Question 36







A company has the following assets:





















Buildings and Equipment,
less accumulated depreciation of $5,000,000	$30,000,000
Copyrights	$2,400,000
Patents	$10,000,000
Land	$12,000,000


The total amount reported under Property, Plant, and Equipment would be




Answer


















$54,400,000.






$42,000,000.






$52,000,000.






$44,400,000.







2 points



Question 37





A machine with a cost of $240,000 has an estimated salvage value of $15,000 and an estimated useful life of 5 years or 15,000 hours. It is to be depreciated using the units-of-activity method of depreciation. What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?


Answer
















$75,000.


$45,000.


$65,000.


$80,000.





2 points



Question 38





Hopson Company incurred $450,000 of research and development costs in its laboratory to develop a new product. It spent $60,000 in legal fees for a patent granted on January 2, 2012. On July 31, 2012, Hopson paid $45,000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to Patents through July 31, 2012?


Answer
















$450,000.


$105,000.


$555,000.


Some other amount.





2 points



Question 39






The following information is provided for Nguyen Company and Northwest Corporation.



































Nguyen Company
(in $ millions)	Northwest Corporation
(in $ millions)
Net income 2012	$275	$390
Net sales 2012	$1,500	$4,100
Total assets 12/31/10	$1,000	$2,400
Total assets 12/31/11	$1,050	$3,000
Total assets 12/31/12	$1,150	$4,000




If Nguyen and Northwest are in the same industry and the industry average for the asset turnover ratio is equal to 1.20 times, which of the following statements is true?



Answer

















Nguyen is operating more efficiently than the industry.




Northwest is operating more efficiently than Nguyen.




Both Nguyen and Northwest are operating more efficiently than the average company in their industry.




The asset turnover ratio does not address the question of efficient operations.






2 points



Question 40





Recording depreciation each period is necessary in accordance with the


Answer
















going concern principle.


cost principle.


expense recognition principle.


asset valuation principle.





2 points



Question 41





The cost of successfully defending a patent in an infringement suit should be


Answer
















charged to Legal Expenses.


deducted from the book value of the patent.


added to the value of the patent.


recognized as a loss in the current period.





2 points



Question 42





Management should select the depreciation method that


Answer
















is easiest to apply.


best measures the plant asset's market value over its useful life.


best measures the plant asset's contribution to revenue over its useful life.


has been used most often in the past by the company.





2 points



Question 43





A truck costing $30,000 and on which $26,000 of accumulated depreciation has been re-corded was discarded as having no value. The entry to record this event would include a


Answer
















gain of $4,000.


loss of $4,000.


credit to Accumulated Depreciation for $26,000.


credit to Accumulated Depreciation for $30,000.





2 points



Question 44





Grant Company has decided to change the estimate of the useful life of an asset that has been in service for 2 years. Which of the following statements describes the proper way to revise a useful life estimate?


Answer
















Revisions in useful life are permitted if approved by the IRS.


Retroactive changes must be made to correct previously recorded depreciation.


Only future years will be affected by the revision.


Both current and future years will be affected by the revision.





2 points



Question 45





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?


Answer
















$30,000 should be debited to the Land account.


$12,000 should be debited to Land Improvements.


$42,000 should be debited to the Land account.


$42,000 should be debited to Land Improvements.





2 points



Question 46





A loss on disposal of a plant asset is reported in the financial statements


Answer
















in the Other Revenues and Gains section of the income statement.


in the Other Expenses and Losses section of the income statement.


as a direct increase to the capital account on the balance sheet.


as a direct decrease to the capital account on the balance sheet.





2 points



Question 47





Expenditures that maintain the operating efficiency and expected productive life of a plant asset are generally


Answer
















expensed when incurred.


capitalized as a part of the cost of the asset.


debited to the Accumulated Depreciation account.


not recorded until they become material in amount.





2 points



Question 48





Kathy's Blooms purchased a delivery van for $40,000. The company was given a $4,000 cash discount by the dealer, and paid $2,000 sales tax. Annual insurance on the van is $1,000. As a result of the purchase, by how much will Kathy's Blooms increase its van account?


Answer
















$40,000.


$36,000.


$39,000.


$38,000.





2 points



Question 49





A truck costing $42,000 and on which $35,000 of accumulated depreciation has been recorded was discarded as having no value. The entry to record this event would include a


Answer
















gain of $7,000.


loss of $7,000.


credit to Accumulated Depreciation for $35,000.


credit to Accumulated Depreciation for $42,000.





2 points



Question 50





At the time of acquisition of a debt investment


Answer
















no journal entry is required.


the cost principle applies.


the Stock Investments account is debited when bonds are purchased.


the investment account is credited for its cost plus brokerage fees.





2 points



Question 51





Which of the following is not a method of accounting for stock investments?


Answer
















Cost method.


Stock method.


Consolidated financial statements.


Equity method.





2 points


Question 52





Hagen Company had these transactions pertaining to stock investments:
Feb. 1 Purchased 2,500 shares of Farley Company (10%) for $41,500 cash plus brokerage fees of $1,000.
June 1 Received cash dividends of $2 per share on Farley stock.
Oct. 1 Sold 1,000 shares of Farley stock for $20,000 less brokerage fees of $500.
Dec. 1 Received cash dividends of $2 per share on Farley stock.

The entry to record the receipt of the dividends June 1 would include a


Answer
















debit to Stock Investments of $5,000.


credit to Dividend Revenue of $5,000.


debit to Dividend Revenue of $5,000.


credit to the Stock Investments of $5,000.



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