ACC 201 FINANCIAL ACCOUNTING

REVIEW FOR TEST 4/FINAL EXAM

 

INSTRUCTOR: S.RAO

 

The following is a list of 80 multiple choice questions. On the final exam, you will need to answer 33 questions from the following list of questions.  I have provided answers for those questions that involve calculations; for the others, you will need to read chapters 10, 11 & 12 to figure out the answers. 

 

CHAPTER 10

1. Which of the following plant assets is not subject to depreciation?

A) land improvements

B) land

C) equipment

D) building

 

2. Biggers Company acquires land, equipment and a building for $350,000. The market values of

the three assets are, respectively: $125,000, $75,000, and $200,000. The journal entry to record

the acquisition would include a debit to the land account for:

A) $65,625

B) $109,375

C) $175,000

D) $125,000

Answer: B

 

3. The cost of fencing should be charged to:

A) repairs expense

B) land

C) land improvements

D) maintenance expense

 

4. Five hundred acres of land are purchased for $130,000. Additional costs include $5,000

brokerage commission, $10,000 for removal of an old building, $6,000 for paving, and an $800

survey fee. What is the cost of the land?

A) $145,800

B) $155,800

C) $155,000

D) $135,800

Answer: A

 

5. Ruth Construction Company paid $40,000 for equipment with a fair market value of $45,000.

Ruth Construction Company will record equipment at:

A) $45,000

B) $42,500

C) either $40,000 or $45,000

D) $40,000

Answer: D

 

6. Cycle Company made a lump-sum purchase of land, building, and equipment for $630,000.

The appraised market values for the items are respectively, $210,000, $322,000, and $168,000.

Cycle Company should debit the building account for:

A) $289,800

B) $189,000

C) $151,200

D) $168,000

Answer: A

 

7. A used machine with a purchase price of $80,000, requiring installation costs of $8,000,

insurance while in transit of $500, would have a cost basis of:

A) $80,000

B) $88,000

C) $88,500

D) $87,500

Answer: C

 

8. The term applied to the periodic transfer of a plant asset's cost to expense is:

A) amortization

B) depreciation

C) depletion

D) capitalization

 

9. Expenditures that are periodic and routine are called:

A) product expenses

B) capital expenditures

C) revenue expenditures

D) asset expenditures

 

10. Accumulated depreciation:

A) is a contra liability account

B) is an expense account

C) is a contra asset account

D) is a contra equity account

 

11. When the amount of use of a plant asset varies from year to year, the method of determining

depreciation that matches revenues and expenses would be the:

A) straight-line method

B) double-declining balance method

C) units-of-production method

D) either straight-line method or the double-declining balance method

 

12. If depreciation expense for an asset is the same every year, which method is being used?

A) straight-line

B) units-of-production

C) double-declining balance

D) either units-of-production or double-declining balance

 

13. Which depreciation method generally results in the greatest depreciation expense in the first

full year of an asset's life?

A) double-declining balance

B) units-of-production

C) straight-line

D) either straight-line or double-declining balance

 

Table 1

On January 1, 20X5, Zipper Manufacturing Company purchased a machine for $39,980, and expects to use the machine a total of 32,000 hours over the next four years. Zipper set the residual value on the machine at $3,500. Zipper used the machine 6,000 hours in 20X5 and 7,200 hours in 20X6.

 

14. Referring to Table 1, what is the depreciation expense for 20X5 if Zipper uses double-declining balance depreciation?

A) $9,995

B) $19,990

C) $18,240

D) $9,120

Answer: B

 

15. Referring to Table 1, what is the depreciation expense in 20X6 if Zipper uses units-of-production depreciation?

A) $5,156

B) $4,500

C) $6,192

D) $8,208

Answer: D

 

16. Referring to Table 1, what is the depreciation expense in 20X6 if Zipper uses straight-line depreciation?

A) $6,875

B) $13,750

C) $9,120

D) $12,000

Answer: C

 

17. Referring to Table 1, what is the depreciation expense in 20X6 if Zipper uses double-declining

balance depreciation?

A) $9,995

B) $6,000

C) $6,875

D) $12,000

Answer: A

(Depreciation expense in the first year is 50% of $39,980=19,990, second year depreciation expense is 50% of book value of 19,990 (39,980-19,990) = $9,995)

 

18. The entry to record depreciation on a building is:

A) Depreciation Expense

Accumulated Depreciation-Building

B) Depreciation Expense

Building

C) Building Expense

Accumulated Building Expense

D) Building Expense

Building

 

19. The depreciation method that initially ignores residual value is:

A) units-of-production

B) straight-line

C) both double-declining balance and straight-line

D) double-declining balance

 

Table 2

On January 1, 20X5, Better Realty purchased a $45,000 vehicle to chauffeur clients to prospective homes. Better plans on driving the vehicle for five years or 100,000 miles. Expected residual value is $10,000.

20. Referring to Table 2, the depreciable cost of the vehicle is:

A) $35,000

B) $45,000

C) $9,000

D) $40,000

Answer: A

 

21. Referring to Table 2, the 20X6 depreciation expense using the straight-line method is:

A) $7,500

B) $8,750

C) $2,500

D) $7,000

Answer: D

 

22. Refer to Table 2. Better Realty drove the vehicle 25,000 miles in 20X7. The depreciation expense for 20X7 using the units-of-production method is:

A) $6,480

B) $2,850

C) $6,200

D) $8,750

Answer: D

 

23. Refer to Table 2. The 20X7 depreciation expense using the double-declining balance method is:

A) $6,480

B) $8,750

C) $6,200

D) $2,880

Answer: C

 

24. Refer to Table 2. The book value of the vehicle at the end of 20X5, after recording depreciation for the year using the straight-line method, is:

A) $28,000

B) $38,000

C) $36,000

D) $31,000

Answer: B

 

25. Refer to Table 2. The book value of the vehicle at the end of 20X6, after recording depreciation for the year using the double-declining balance method, is:

A) $18,000

B) $16,200

C) $27,000

D) $10,800

Answer: B

 

26. Refer to Table 2. The balance in the accumulated depreciation account at the end of 20X6, after recording depreciation using the double-declining balance method, is:

A) $27,000

B) $28,800

C) $16,200

D) $10,800

Answer: B

 

27. A gain is recorded on the disposal of plant assets when:

A) an asset is sold for a price greater than the asset's book value

B) the asset's residual value is less than the cash received

C) the asset's book value is greater than the amount of cash received from the sale

D) the asset'

 

28. Westchester Company recently sold some used furniture for $3,800 cash. The furniture cost

$19,600 and had accumulated depreciation through the date of sale totaling $17,300. The

journal entry to record the sale of the furniture is:

A) Cash 3,800

Accum. Depn.-Furniture 15,800

Furniture 19,600

B) Cash 3,800

Furniture 3,800

C) Cash 3,800

Gain on Sale of Furniture 3,800

D) Cash 3,800

Accum. Depn.-Furniture 17,300

Furniture 19,600

Gain on Sale of Furniture 1,500

Answer: D

 

CHAPTER 11

 

29. Current liabilities:

A) are due within one year or one operating cycle, whichever is longer

B) must be of a known amount

C) must be of an estimated amount

D) are subtracted from long-term liabilities on the balance sheet

 

30. When a company records accrued interest on a note payable:

A) cash is debited

B) note payable is credited

C) interest expense is credited

D) interest payable is credited

 

31. When a company records accrued interest at year-end on a note payable:

A) interest is accrued for the total life of the note

B) interest is accrued for the number of days the note is outstanding in the current period

C) interest is accrued for the number of days the note is outstanding in the subsequent period

D) none of the above

 

32. Unearned revenue represents revenue that has:

A) been earned and collected

B) been earned but not yet collected

C) been collected but not yet earned

D) not been collected nor earned

 

33. Warranty expense is debited in the period that:

A) the product is repaired

B) either the product is sold or the cash is collected

C) the cash is collected from the customer

D) the product is sold

 

34. What entry is required when a business estimates warranty expense each period based on sales revenue?

A) Warranty Expense

Estimated Warranty Payable

B) Warranty Expense

Sales

C) Inventory

Estimated Warranty Payable

D) Cost of Goods

Sold Warranty Expense

 

35. A liability created for receiving cash for future services to be provided is termed a(n):

A) service revenue

B) estimated warranty payable

C) unearned revenue

D) accrued liability

 

36. Sales revenue for Joe's Sporting Goods for the current period amounted to $215,000. All sales are on account. The sales tax rate is 7%. The journal entry would include a debit to:

A) accounts receivable for $230,050

B) accounts receivable for $215,000

C) sales tax payable for $15,050

D) sales revenue for $215,000

Answer: A

 

37. The entry to pay accrued sales tax would include a:

A) debit to sales tax payable

B) debit to sales tax expense

C) credit to sales tax payable

D) credit to sales tax expense

 

38. Interest payable is shown on the:

A) income statement as an operating expense

B) balance sheet as a long-term liability

C) balance sheet as a current liability

D) balance sheet as a current asset

 

39. Unearned subscription revenue appears on the balance sheet as a:

A) long-term asset

B) long-term investment

C) current asset or long-term investment

D) current liability or long-term liability

 

Table 1

A $20,000, 90-day, 8% note payable was issued on November 1, 20X5.

 

40) Referring to Table 1, what is the amount of the accrued interest on December 31, 20X5?

A) $267

B) $200

C) $133

D) $800

Answer: A

 

40. Referring to Table 1, what is the amount of interest expense recorded in 20X6?

A) $133

B) $67

C) $200

D) $800

Answer: A

 

41. Referring to Table 1, the entry on maturity date would include a:

A) debit to interest payable for $133

B) debit to interest expense for $133

C) credit to note payable for $20,400

D) credit to cash for $20,000

Answer: B

Table 2

 

A $6,000, 120-day, 8% note payable is issued to the bank on October 2, 20X5.

 

42) Referring to Table 2, what account is credited on October 2, 20X5?

A) interest payable

B) cash

C) interest expense

D) note payable

 

43. Referring to Table 2, the adjusting entry on December 31, 20X5, would include a:

A) debit to interest expense for $40

B) credit to interest payable for $160

C) debit to interest payable for $120

D) debit to interest expense for $120

Answer: D

 

44. Referring to Table 2, the entry on maturity date to accrue interest will involve a:

A) debit to interest payable for $40

B) debit to interest expense for $40

C) credit to note payable for $40

D) credit to interest expense for $160

Answer: B

 

45. During January, Nancy's Fabrics records sales revenue of $169,600. All sales are for cash.

Assuming a 6% sales tax rate, the entry to record sales would include a debit to:

A) sales tax payable for $9,600

B) cash for $179,776

C) cash for $169,600

D) cash for $160,000

Answer: B

 

46. A company borrows $5,000 on November 1, 20X6, giving a 10%, 180-day note payable. The

adjusting entry on December 31, 20X6, would include a:

A) credit to interest payable for $167

B) debit to interest expense for $250

C) credit to interest payable for $83

D) credit to cash for $83

Answer: C

 

47. A company issues a $100,000, 120-day note at the bank at 8%. How much will the company

receive from the bank?

A) $97,333

B) $102,667

C) $100,000

D) none of the above

Answer: C

 

Table 4

Bentley Enterprises purchased $8,000 of inventory by issuing a 180-day, 7.5% note

payable on November 1, 20X6. Bentley has a December 31 year-end.

 

48. Referring to Table 4, the amount of accrued interest on December 31, 20X6, would be:

A) $200

B) $300

C) $600

D) $100

Answer: D

 

49. Refer to Table 4. The December 31, 20X6, balance sheet would report:

A) interest expense of $300

B) interest payable of $100

C) a note payable of $8,600

D) a note payable of $7,700

Answer: B

 

50. Refer to Table 4. The entry on maturity date to pay the note payable and interest would

include a:

A) debit to interest payable of $100

B) debit to interest expense of $300

C) credit to interest payable of $200

D) credit to cash of $8,000

Answer: A

 

51. Refer to Table 4. The amount of interest expense recognized in 20X7 would be:

A) $200

B) $500

C) $400

D) $300

Answer: A

 

52. Warranty expense is debited:

A) in the period the product under warranty is repaired or replaced

B) in the period after the product is sold

C) in the period after the product is repaired or replaced

D) in the period the revenue from selling the product was earned

 

53. Estimating a warranty expense in the same period as the sales revenue is recognized is an

example of:

A) the matching principle

B) conservatism

C) the full disclosure principle

D) the revenue recognition principle

 

54. Sales revenue for Booker Company for 20X7 amounted to $800,000. The products sold carry a six- month warranty. Management estimates the cost of the warranty to be 3% of sales

revenue. Booker should:

A) debit warranty expense in 20X7 for $24,000

B) debit estimated warranty payable in 20X7 for $24,000

C) debit warranty expense when the products are repaired or replaced in either 20X7 or 20X8

D) credit estimated warranty payable in either 20X7 or 20X8 when the products are repaired

or replaced

Answer: A

 

55. When a product is repaired under warranty, the entry includes a:

A) a debit to warranty expense

B) a credit to warranty expense

C) a debit to estimated warranty payable

D) a credit to estimated warranty payable

 

56. For which of the following taxes is there a ceiling on the amount of annual employee earnings

subject to the tax?

A) only the FICA tax

B) only the FICA tax and the federal unemployment tax

C) only the state and federal unemployment taxes

D) the FICA tax and the state and federal unemployment taxes

 

57. The total amount of employee compensation before deductions are taken out is referred to as:

A) gross pay

B) net pay

C) compensation after withholdings

D) take-home pay

 

58. Net pay is equal to:

A) take-home pay plus all deductions

B) all deductions plus all withholdings

C) gross pay minus all deductions

D) gross pay minus federal and state income taxes

 

59. All of the following are payroll taxes that are expenses of the employer except:

A) FICA taxes

B) employee income taxes

C) state unemployment taxes

D) federal unemployment taxes

 

60. Robert Martin's gross earnings for the week ended December 20 amount to $2,200. His

cumulative gross earnings for the year up through the last pay period amount to $89,300.

Calculate the FICA tax deduction for the current period, using an 8% rate up to gross earnings

of $90,000 per year.

A) $7,144

B) $176

C) $56

D) $7,200

Answer: C

 

61. Sumiko Greer is paid $25 per hour with time and one-half her regular hourly pay rate for all

hours exceeding 40 per week. During the week ended January 12, Sumiko worked 45 hours.

Her deduction for FICA tax, assuming an 8% FICA rate, would be:

A) $80

B) $90

C) $95

D) $10

Answer: C

 

Table 8

TravelAmerica has 24 employees who are paid on a monthly basis. For the most recent month, gross earnings were $78,000, of which $27,000 is subject to unemployment taxes(federal at .8% and state at 5.4%). Federal income tax withholdings are 20% of total earnings. All employees have $15 per month per employee withheld for charitable contributions. All earnings are subject to 8% FICA tax.

 

62. Referring to Table 8, the employer's total payroll taxes are:

A) $9,656

B) $7,914

C) $7,114

D) $4,216

Answer: B

 

63. Referring to Table 8, the employees' total net pay is:

A) $55,800

B) $50,326

C) $47,784

D) $62,200

Answer: A

Gross pay: 78,000

Deductions:

FIT (20% of 78,000) (15,600)

Charitable cont.(24Emp*$15) (360)

FICA (6240) (22,200)

Net pay 55,800

 

64. Referring to Table 8, TravelAmerica's total payroll cost for the month is:

A) $69,674

B) $73,440

C) $85,914

D) $68,000

Answer: C

Gross pay 78,000+FICA 6240+unemployment taxes (27,000*6.2%) 1,674=$85,914

 

65. Referring to Table 8, the entry to record salary expense includes a:

A) debit to salary expense for $69,674

B) debit to FICA tax payable for $5,440

C) debit to employee income tax payable for $10,200

D) credit to salary payable to employees for $55,800

Answer: D

 

66. Referring to Table 8, the entry to record the employer's payroll taxes includes a:

A) debit to payroll tax payable for $7,114

B) credit to employee income tax payable for $10,200

C) credit to FICA tax payable for $6,240

D) debit to unemployment tax expense for $1,674

Answer: C

 

CHAPTER 12

 

67. A limited partnership:

A) must have at least two general partners

B) is illegal in most states

C) must have at least one general partner

D) none of the above

 

68. The characteristic of partnerships that states that every partner can bind the business to a

contract within the scope of the partnership's regular business operations is called:

A) limited life

B) co-ownership of property

C) unlimited liability

D) mutual agency

 

69. The profits of a general partnership:

A) are not taxable

B) pass through the business to the partners

C) are not taxable unless the partnership has over $250,000 in net income

D) cannot exist unless the partnership has a limited partner

 

70. The partnership characteristic of co-ownership of property states that:

A) any asset a partner invests in the partnership becomes the joint property of all the partners

B) general partners co-own all assets, but limited partners do not

C) general partners own a larger percentage of the assets of a partnership than do limited

partners

D) all partnership assets are co-owned by any banks making loans to the partnership

 

71. Investments of assets into a partnership are recorded at their:

A) current market value

B) book value

C) original cost

D) original cost plus a percentage adjustment to account for inflation

 

72. Eggie, Freddie, and Neddie formed a partnership with Eggie contributing $50,000, Freddie

contributing $60,000 and Neddie investing $90,000. Their partnership agreement called for the

net income division to be based on the ratio of capital investments. If the partnership net

income for the first year of operations was$85,000, what amount of net income would be

credited to Eggie's capital account?

A) $18,750

B) $21,250

C) $37,500

D) none of the above

Answer: B

 

73. Mac and Molly formed a partnership with capital contributions of $80,000 and $120,000,

respectively. Their partnership agreement called for 1) Mac to receive a $20,000 salary, 2) each

partner to receive 10% based on initial capital contributions, and 3) the remaining income or

loss to be divided equally. If net income for the current year is $80,000, what amount is

credited to Mac's capital account?

A) $27,000

B) $43,000

C) $35,000

D) $48,000

Answer: D

 

74. If the partnership agreement does not stipulate how profits and losses will be divided, then by

law, partners must share profits and losses:

A) based on a ratio of time devoted to the business

B) in the ratio of their capital balances

C) equally

D) in the same proportion as their initial investments

 

Table 6

 

Donna, Rick, and Daisy are partners sharing profits in a 3:3:4 ratio, respectively. They have been overwhelmed by the amount of work recently and have agreed to admit Bud to the partnership for a cash investment. The current balances in their capital accounts are $60,000, $80,000, and $120,000, respectively.

 

75. Refer to Table 6. Assuming Bud is given a 12.5% interest in the partnership for a $60,000 cash investment, the entry to record his investment includes a:

A) credit to Bud, capital for $40,000

B) debit to Donna, capital for $6,000

C) credit to Rick, capital for $8,000

D) credit to Bud, capital for $60,000

Answer: A

 

76. Refer to Table 6. Assuming Bud is given a 20% interest in the partnership for an $80,000 cash investment, the entry to record his investment includes a:

A) credit to Bud, capital for $80,000

B) debit to loss on sale of partnership interest for $12,000

C) debit to Daisy, capital for $4,800

D) credit to Donna, capital for $3,600

Answer: D

 

77. Refer to Table 6. Assuming Bud is given a 15% interest in the partnership for a $70,000 cash

investment, the entry to record his investment includes a:

A) credit to Donna, capital for $6,150

B) credit to Bud, capital for $70,000

C) debit to Rick, capital for $6,150

D) credit to gain on sale of partnership interest for $20,500

Answer: A

 

Jimmy, Johnny, and Joey are partners in the 3J Company sharing profits and losses equally. Joey has decided to leave the partnership. After all accounts have been updated, the capital balances of the partners are currently $90,000,$120,000, and $70,000, respectively.

 

78. Refer to Table 8. Assume Joey takes $50,000 in cash and a promissory note for $20,000. The entry to record his withdrawal includes a:

A) credit to Joey, capital for $70,000

B) debit to Joey, capital for $70,000

C) credit to Joey, capital for $50,000

D) debit to Joey, capital for $50,000

Answer: B

 

79. Refer to Table 8. Assume Joey takes $100,000 in cash. The entry to record his withdrawal from the partnership includes a:

A) debit to Jimmy, capital for $30,000

B) credit to Johnny, capital for $15,000

C) debit to Johnny, capital for $15,000

D) debit to Joey, capital for $100,000

Answer: C

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80. To make certain that each partner fully understands how a particular partnership operates, partners should draw up the:

A) articles of partnership

B) articles of assets

C) articles of incorporation

D) articles of business government