Test 3 Review. Student:

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1 Test 3 Review Student: 1. A credit sale of $2,500 to a customer would result in: A. A debit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger B. A credit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger C. A debit to the Accounts Receivable account in the general ledger and a credit to the customer's account in the accounts receivable ledger D. A credit to the Accounts Receivable account in the general ledger and a debit to the customer's account in the accounts receivable ledger E. A credit to Sales and a credit to the customer's account in the accounts receivable ledger 2. The accounting principle that requires financial statements (including notes) to report all relevant information about the operations and financial condition of a company is called: A. Relevance B. Full disclosure C. Evaluation D. Materiality E. Matching 3. The interest accrued on $3,600 at 7% for 60 days is: A. $36 B. $42 C. $252 D. $180 E. $ A 90-day note issued on April 20 has a maturity date of: A. July 17 B. July 18 C. July 19 D. July 20 E. July 21

2 5. A company receives a 10%, 90-day note for $1,500. The total interest due upon the maturity date is: A. $37.50 B. $ C. $75.00 D. $50.00 E. $ A company receives a 6.2%, 60-day note for $9,650. The total amount of cash due on the maturity date is: A. $ B. $99.72 C. $9, D. $10, E. $9, The matching principle requires: A. That expenses be ignored if their effect on the financial statements are less important than revenues to the financial statement user B. The use of the direct write-off method for bad debts C. The use of the allowance method of accounting for bad debts D. That bad debts be disclosed in the financial statements E. That bad debts not be written off 8. The amount of bad debt expense can be estimated by: A. The percent of sales method B. The percent of accounts receivable method C. The aging of accounts receivable method D. Only b and c E. Bad debt expense can be estimated by any of the three methods listed above

3 9. A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $15,750 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a debit balance of $175. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A. B. C. D. E. 10. 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: All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting entry is prepared? A. $925 B. $1,225 C. $4,200 D. $4,500 E. $45,000

4 11. A company ages its accounts receivables to determine its end of period adjustment for bad debts. At the end of the current year, management estimated that $39,375 of the accounts receivable balance would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had a credit balance of $3,285. What adjusting entry should the company make at the end of the current year to record its estimated bad debts expense? A. B. C. D. E. 12. Depreciation: A. Measures the decline in market value of an asset B. Measures physical deterioration of an asset C. Is the process of allocating to expense the cost of a plant asset D. Is an outflow of cash from the use of a plant asset E. Is applied to land 13. Cardco Inc. has an annual accounting period which ends on December 31. During the current year a depreciable asset which 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 5 year life. What is the total depreciation expense for the current year? A. $1, B. $7, C. $2, D. $2, E. $3, Many companies use accelerated depreciation in computing taxable income because: A. It is required by the tax rules B. It is required by financial reporting rules C. It postpones tax payments until later years and the company can use the resources now to earn additional income before payment is due D. Using it causes a company to use higher income in the early years of the asset's useful life E. The results are identical to straight-line depreciation

5 15. Both the straight-line depreciation method and the double-declining-balance depreciation method: A. Produce the same total depreciation over an asset's useful life B. Produce the same depreciation expense each year C. Produce the same book value each year D. Are acceptable for tax purposes only E. Are the only acceptable methods of depreciation for financial reporting 16. A company paid $150,000, plus a 6% commission and $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 allocation of this property's costs in the company's accounting records? A. Land $75,000; Land Improvements, $30,000; Building, $45,000 B. Land $75,000; Land Improvements, $30,800; Building, $46,200 C. Land $81,500; Land Improvements, $32,600; Building, $48,900 D. Land $79,500; Land Improvements, $32,600; Building, $47,700 E. Land $87,500; Land Improvements; $35,000; Building; $52, A company purchased property for a building site. The costs associated with the property were: What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building? A. $175,800 to Land; $18,800 to Building B. $190,000 to Land; $3,800 to Building C. $190,800 to Land; $1,000 to Building D. $192,800 to Land; $0 to Building E. $193,800 to Land; $0 to Building 18. The total cost of an asset less its accumulated depreciation is called: A. Historical cost B. Book value C. Present value D. Current (market) value E. Replacement cost

6 19. 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): A. Accelerated depreciation method B. Book value depreciation method C. Straight-line depreciation method D. Units-of-production depreciation method E. Unrealized depreciation method 20. A company purchased a POS cash register on January 1 for $5,400. This register has a useful life of 10 years and a 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, A company purchased a rope braiding machine for $190,000. The machine has a useful life of 8 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, 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

7 23. Sales taxes payable: A. Is an estimated liability B. Is a contingent liability C. Is a current liability for retailers D. Is a business expense E. Is a long-term liability 24. Advance ticket sales totaling $6,000,000 cash would be recognized as follows: A. Debit Sales, credit Unearned Revenue B. Debit Unearned Revenue, credit Sales C. Debit Cash, credit Unearned Revenue D. Debit Unearned Revenue, credit Cash E. Debit Cash, credit Revenue Payable 25. A contingent liability: A. Is always of a specific amount B. Is a potential obligation that depends on a future event arising out of a past transaction or event C. Is an obligation not requiring future payment D. Is an obligation arising from the purchase of goods or services on credit E. Is an obligation arising from a future event 26. Gross pay is: A. Take-home pay B. Total compensation earned by an employee before any deductions C. Salaries after taxes are deducted D. Deductions withheld by an employer E. The amount of the paycheck 27. FICA taxes include: A. Social Security taxes B. Charitable giving C. Employee income taxes D. Unemployment taxes E. Federal Taxes

8 28. An employee earned $47,000 during the year working for an employer. The FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is: A. $ B. $2, C. $3, D. $7, E. Zero, since the employee's pay exceeds the FICA limit 29. The current FUTA tax rate is 0.8% and the SUTA tax rate is 5.4%. Both taxes are applied to the first $7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total unemployment taxes the employer must pay on this employee's wages? A. $ B. $ C. $ D. $ E. Zero, since the employee's wages exceed the maximum of $7, An employee earned $4,300 working for an employer. The current rate for FICA social security is 6.2% and the FICA Medicare rate is 1.45%. The employer's total FICA payroll tax for this employee is: A. $62.35 B. $ C. $ D. $ E. Zero, since the FICA tax is a deduction from an employee's pay and not an employer tax

9 31. Youngsong Martin, the founder of Wildflower Linen, realized that effectively managing payroll was crucial to the success of her business. If an employee of the company earns $50,500 per year, Wildflower Linen's total FICA payroll tax for this employee is: A. $3, B. $3, C. $ D. $3,535 E. Zero because the employee has not earned more that the FICA earnings limitation Answers: 3. B, 4. C, 5. A, 6. E, 9. C, 10. D, 11. A, 13. C, 16. C, 17. E, 20. C, 21. B, 22. B, 28. C, 29. B, 30.C, 31.A SHORT QUESTION ( 10 POINTS): WILL BE SIMILAR TO CHAPTER 8 ASSIGNMENT. WILL GIVE YOU THE SAME TEMPLATE TO COMPLETE THE QUESTION. WILL ASK ANY ONE METHOD OF DEPRECIATION: STRAIGHT LINE, UNITS OF PRODUCTION OR DECLINING BALANCE METHOD.

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