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Accounting 284 Exam #2 Review Material
November 2 & 3, 2008
**I have created this review material in multiple choice format like you will be taking.
However, this is NOT all inclusive (i.e. You should not just study this!) GOOD LUCK!!**
Chapter 5:
1. Which of the following is NOT considered one of the four users of the financial
statements?
a. Managers
b. Board of Directors
c. Creditors
d. ALL of the above would be users of the financial statements.
2. Which of the following is NOT one of the three requirements for fraud?
a. Incentive
b. Opportunity
c. Money
d. Character (lack of)
3. The Sarbanes Oxley Act of 2002....
a. rewards companies for not committing fraud.
b. has nothing to do with accounting.
c. holds top management responsible for the contents of the financial statements.
d. was put in place to prevent/deter fraud.
e. c & d
4. A comparative financial statement...
a. is a financial statement that can be compared to other companies.
b. is a financial statement that combines the balance sheet and income statement.
c. is a financial statement that includes separate columns for multiple periods’ results side
by side for the same company.
d. None of the above.
5. What ratio is REQUIRED to be put on the face of the income statement?
a. Asset turnover ratio.
b. Earnings per share.
c. Inventory turnover ratio.
d. Receivables turnover ratio.
6. What is the annual form that companies are required to file with the SEC?
a. 10Q
b. 8K
c. 10B
d. 10K
7. Which of the following ways would could a company obtain financing?
a. Issue stock
b. Issue bonds
c. Take out a loan.
d. All of the above
e. None of the above.
8. Approximately how much of assets should be financed by equity (i.e. What is the ideal?)
a. 1/10
b. 2/3
c. 3/4
d. 1/3
Chapter 6:
9. A manufacturing company would have which inventory accounts?
a. Manufacturing companies have no inventory.
b. Merchandise inventory.
c. Raw Materials, Work-in Progress, Merchandise Inventory
d. Raw Materials, Work-in-Progress, Finished Goods
**Use the following for questions 10-12 ****
Company B has $20,280 cash according to the books on Aug. 31. The company’s bank
statement states they have $16,130 cash on Aug. 31. The following information is available:
Deposits in Transit:
Outstanding Checks:
Interest Earned
Bank Service Charge
$5,000
$840
$20
$10
10. What needs to be done with the Deposits in Transit?
a. Add them to the book balance.
b. Subtract them from the book balance.
c. Add them to the bank balance.
d. Subtract them from the bank balance.
11. A bank service charge would...
a. increase the bank balance.
b. decrease the bank balance.
c. increase the book balance.
d. decrease the book balance.
12. How much cash should be recorded on the balance sheet? (i.e. What is the correct cash
balance after reconciling the book and bank?)
a. $12,740
b. $20,300
c. $20,290
d. $17,500
13. Cash equivalents are short-term, highly liquid investments that mature in.....
a. 6 months or less
b. 3 months or less
c. 2 months or less
d. 1 month or less
14. When using a PERIODIC inventory system and you purchase inventory, what account
do you debit?
a. Inventory
b. COGS
c. Purchases
d. Merchandise
15. Company ABC purchases $3,000 worth of inventory on Dec. 2, 2008. The company paid
cash. What would the journal entry be (using a PERPETUAL inventory system)?
a. Debit Cash, Credit Purchases
b. Debit Cash, Credit Inventory
c. Debit Inventory, Credit Cash
d. Debit Purchases, Credit Cash
16. On January 1, 2008, Company XYZ sells Company B inventory for $5,000 on account,
terms 2/10, n/30. If Company B pays within the discount period, how much cash will they
need to pay to be “paid in full”.
a. $5,000
b. $4,800
c. $4,998
d. $4,900
17. ABC Company sells inventory for $500 to XYZ Company on Feb. 2, 2009, terms 2/10,
n/30. If XYZ pays for the inventory within the discount period, what journal entry would
ABC Company record?
a. Debit Cash for $490, Credit Sales Discounts for $10 and A/R for $500.
b. Debit Cash for $490 and Sales Discounts for $10; Credit A/R for $500
c. Debit Cash for $490 and Sales Discounts for $10; Credit A/R for $490.
d. Debit A/R for $500 and Sales Discounts for $10; Credit Cash for $490.
18. Net Sales=
a. Gross Sales-Sales Discounts- Sales Returns & Allowances
b. Gross Sales-Purchase Discounts- Sales Returns & Allowances
c. Gross Sales- Purchase Discounts- Purchase Returns & Allowances
d. Gross Sales-Sales Discounts- Purchase Returns & Allowances.
Chapter 7:
19. LIFO Conformity rule states that....
a. If a company uses LIFO on their financial statements, they must use it for tax purposes.
b. If a company uses LIFO for tax purposes, they must use it for their financial statements.
c. A company must disclose they are using LIFO inventory method.
d. LIFO is the only method acceptable according to GAAP.
Use the following information to answer questions 20 -22 Assume a periodic inventory
system.
Beginning Inventory
Sale
Purchase #1
Sale
Purchase #2
Sale
Quantity
200 units
50 units
500 units
250 units
700 units
450 units
Cost per Unit
$10
$12
$13
20. Using LIFO (Last-in-First Out), what is the COGS?
a. $9,000
b. $8,000
c. $9,700
d. $7,900
21. Using FIFO (First-In-First-Out), what is COGS?
a. $8,650
b. $7,680
c. $5,450
d. $8,600
22. Using weighted average, what is the weighted cost per unit?
a. $12.50
b. $12.21
c. $13.54
d. $11.56
23. If you overstate COGS in the current year, you understate__________ for the current
year.
a. Sales
b. Beginning Inventory
c. Ending Inventory
d. None of the above.
24. Company A had beginning inventory of $10,000 on January 1. Cost of Goods sold were
$15,000. Ending inventory on December 31 was $9,000. How much inventory was
purchased during the year?
a. $10,000
b. $24,000
c. $12,000
d. $14,000
25. In times of rising prices, what method will give you the highest COGS?
a. Specific Identification
b. LIFO
c. FIFO
d. Weighted Average
Use the following information from Company D for questions 26-27.
Quantity
Cost
Market/Replacement
Item #1
20
$11
$13
Item #2
15
$14
$10
Item #3
12
$17
$18
Item #4
35
$12
$11
26. How much did Company D pay for the inventory in stock (i.e. how much money did
they pay to acquire their current inventory?)
a. $1,550
b. $1,340
c. $1,054
d. $1,220
27. Using lower cost or market (item by item), how much does the inventory need to be
written down?
a. $104
b. $154
c. $87
d. $95
Chapter 8
28. A note receivable is...
a. a short term contract from sale of goods on credit
b. a formal written contract outlining the terms by which the company will repay, typically
including interest.
c. an informal, verbal contract that outlines the terms by which the company will repay
d. none of the above
29. What accounting principle is the reason we estimate and record the amount of bad debt
we will have in the period that we make the sale?
a. Conservatism
b. Full disclose
c. Matching
d. Reliability
30. Company A has sales of $540,000 for 2008. Based on prior experience, the company
estimates 2.5% to be bad debt. How much bad debt should be recorded for 2008?
a. $13,500
b. $13,000
c. $14,000
d. $12,500
31. Company A determines on Feb. 1, 2009, that a $1,000 account receivable will be
uncollectible. What affect does this write off have on the financial statements?
a. Increases bad debt expense
b. Increases the Allowance for Doubtful Accounts
c. Decreases bad debt expense
d. Has no affect.
Using the following information to answer questions 32-33. The year is 2008.
Age
0-30 days
30-60 days
60-90 days
>90 days
Amount
$840,000
$450,000
$235,000
$65,000
Estimated Bad Debt %
1.5%
3.0%
5.7%
11.6%
32. How much should be ending inventory for the Allowance for Doubtful Accounts at the
end of 2008?
a. $46,570
b. $47,650
c. $47,035
d. $37,035
33. The beginning balance of the Allowance for Doubtful Accounts for the year was
$12,540. Writeoffs of bad debt equaled $5,000. How much bad debt expense should be
recorded for 2008?
a. $52,035
b. $12,540
c. $17,540
d. $39,495 (NOTE: This was originally $35,495 which was an error!)
34. Company B has a beginning balance of $3,000 for the Allowance for Doubtful Accounts.
During the year, the company has recorded an additional $8,500 of bad debt. The ending
balance in the Allowance for Doubtful Accounts is $6,500. How much A/R was written off
during the year?
a. $11,500
b. $5,000
c. $6,000
d. $11,000
35. ABC Company lends $1,000,000 to Company ZYZ on July 1, 2008 to be collected on
June 30, 2009, principal plus interest. The interest on the loan is 10%. How much interest
revenue should be recognized on December 31, 2008?
a. $100,000
b. $0
c. $50,000
d. $1,100,000
Chapter 9
36. Which of the following assets are NOT depreciated?
a. Land
b. Equipment
c. Vehicles
d. Buildings
37. You can only capitalize goodwill when...
a. you have it.
b. when your company is valued higher than the FMV
c. you give to the community
d. when you buy another company for more than FMV.
38. All of the following are intangible assets except:
a. Licensing rights
b. Equipment
c. Trademarks
d. Copyrights
39. Which of the following are not included in the acquisition cost of a piece of equipment?
a. Purchase price
b. Transportation charges
c. Routine maintenance
d. Installation costs
40. Which of the following are not capitalized?
a. A major engine overall on a piece of equipment.
b. A new delivery truck
c. A new addition to an existing building
d. Research and development costs.
41. On January 1, 2005, Company D purchased a piece of equipment for $60,000. The
accumulated depreciation up to date is $15,000. The estimated salvage value is $10,000.
What is the book(carrying) value of this piece of equipment?
a. $60,000
b. $45,000
c. $35,000
d. $50,000
42. On January 1, 2008, Company ABC purchased equipment for $70,000. The estimated
salvage value is $10,000. The estimated useful life is 12 years. Using STRAIGHT LINE
depreciation, how much is the depreciation expense per year?
a. $10,000
b. $1,200
c. $5,000
d. $80,000
43. On January 1, 2009, XYZ Company purchases equipment for $100,000. The estimated
useful life in units is 200,000 units. The estimated salvage value is $20,000. During 2009, the
equipment’s output is 15,000 units. In the next year (2010), the output is 25,000 units. What
is the accumulated depreciation at the end of 2010 (after 2 years)?
a. $6,000
b. $10,000
c. $16,000
d. $12,000
44. B Company uses double declining balance depreciation method. On January 1, 2010,
they purchase a piece of equipment for $120,000. The estimated salvage value is $10,000.
Useful life is estimated to be 10 years. What is the depreciation expense for 2011 (the
second year)?
a. $24,000
b. $43,200
c. $19,200
d. $11,000
45. Company Z purchased a building for $250,000. Five years later, they sell the building
for $220,000. To date, the accumulated depreciation is $40,000. How much of a gain or loss
should Company Z record for the year of sale?
a. $10,000 Loss
b. $10,000 Gain
c. $20,000 Gain
d. $30,000 Loss