I have a total of 100 questions and am unsure about my answers to these ones
3. Margaret is a customer of Tammy Company. The company wrote off her account of $1,200 on August
15. On October 12, she sent in a payment of $560. What will Tammy Company record first to reinstate
her account?
A. Debit Uncollectible Accounts Expense; credit Accounts Receivable/Margaret.
B. Debit Cash; credit Accounts Receivable/Margaret.
C. Debit Allowance for Doubtful Accounts; credit Accounts Receivable/Margaret.
D. Debit Accounts Receivable/Margaret; credit Allowance for Doubtful Accounts.
I said B
12. Research and development costs (R&D) are generally
A. listed as "long-term assets" on the balance sheet.
B. expensed and become part of the income statement.
C. listed as "other intangibles" on the balance sheet.
D. listed as "current assets" on the balance sheet.
I said A
18. Jewell Company has current assets of $56,000; long-term assets of $135,000; current liabilities of
$44,000; and long-term liabilities of $90,000. Jewell Company's debt ratio is
A. 78.6%.
B. 239.3%.
C. 127.3%.
D. 70.2%.
I said D
24. Which marketable securities are reported at cost on the balance sheet date?
A. Trading securities
B. Trading and held-to-maturity securities
C. Available-for-sale securities
D. Held-to-maturity securities
I said A
27. By not accruing warranty expense,
A. reported expenses will be understated, and net income will be understated.
B. reported expenses will be overstated, and reported liabilities will be understated.
C. reported liabilities will be overstated, and net income will be understated.
D. reported liabilities will be understated, and net income will be overstated.
I said A
30. Which of the following marketable securities are reported at market value on the balance sheet date?
A. Available-for-sale and trading securities
B. Held-to-maturities securities
C. Trading securities
D. Available-for-sale securities
I said D
42. Cash equivalents are
A. not liquid and carry little risk.
B. not liquid and carry high risk.
C. very liquid and carry high risk.
D. very liquid and carry little risk.
I said B
45. Tammy Industries inadvertently debited a $5,000 betterment as an ordinary expense. Which of the
following will occur as a result of this mistake?
A. The asset will be understated by $5,000.
B. The asset will be overstated by $5,000.
C. Net income will be overstated by $5,000.
D. Retained earnings will be overstated by $5,000.
I said C
52. Which of the following would not be a liability according to FASB's definition of a liability?
A. A note payable with no specified maturity date
B. The signing of a three-year employment contract at a fixed annual salary
C. An obligation that's estimated in amount
D. An obligation to provide goods or services in the future
I said A
58. Nick Company has cash of $33,000; net accounts receivable of $41,000; short-term investments of
$15,000; and inventory of $25,000. It also has $30,000 in current liabilities and $50,000 in long-term
liabilities. The quick ratio for Nick Company is
A. 3.30.
B. 2.97.
C. 1.78.
D. 3.80.
I said B
61. Use the _______ principle to estimate warranty liabilities.
A. conservatism
B. objectivity
C. matching
D. entity
I said D
67. Which of the following would be considered a contingent liability?
A. Mortgage obligation
B. Sales tax obligation
C. Pending legal action
D. Accounts payable obligation
I said D
68. A repair that extends the useful life of an asset would be considered a/an
A. ordinary repair.
B. capital expense.
C. betterment.
D. extraordinary repair.
I said B
76. A truck costing $56,000 has accumulated depreciation of $50,000. The truck is scrapped for $500. The
journal entry to record this transaction is
A. debit Cash for $500, debit Truck for $50,000, debit Loss on Disposal for $5,500, and credit Accumulated Depreciation—
Truck for $56,000.
B. debit Loss on Disposal $6,000, debit Accumulated Depreciation—Truck for $50,000, and credit Truck for $56,000.
C. debit Cash for $500, debit Accumulated Depreciation—Truck for $50,000, debit Loss on Disposal for $5,500, and credit
Truck for $56,000.
D. debit Cash for $500, debit Loss on Disposal for $55,500, and credit Truck for $56,000.
I said B
81. Brandon Company completed an aging of its accounts receivable and came up with an estimated
amount of $6,342. The credit sales for the period are $85,000. The balance in the allowance for doubtful
accounts is a debit of $817. If Brandon uses 5% of credit sales as its estimating uncollectible accounts, how
much will the credit be to the allowance for doubtful accounts if Brandon uses the percent of credit sales as its method of estimating uncollectible accounts?
A. $4,250
B. $7,159
C. $5,525
D. $5,067
I said A
90. Mackey Company has a five-year mortgage for $100,000. In the first year of the mortgage, Mackey
will report this liability as a
A. long-term liability of $100,000.
B. current liability of $100,000.
C. current liability of $80,000 and a long-term liability of $20,000.
D. current liability of $20,000 and a long-term liability of $80,000.
I said D
95. Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B
was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The
amount at which item C should be recorded (rounded to the nearest dollar) is
End of exam
A. $72,000.
B. $29,167.
C. $83,300.
D. $50,000.
I said B
98. Meranda Corporation purchases a machine for $125,000. It has an estimated salvage value of $10,000
and is expected to produce 50,000 units in its lifetime. During the first year of operation, it produced
14,500 units. To the nearest dollar, the depreciation for the first year under the units of production method
will be
A. $35,500.
B. $33,350.
C. $36,250.
D. $31,250.
I said D
99. Which of the following is not a benefit to extending credit to customers?
A. Increased revenues
B. Bad-debt expenses
C. Increased profits
D. Wider range of customers
I sad B
Casey Company's bank statement shows a blank balance of $43267. The statement shows a blank service charge of $50. Casey's book balance show outstanding checks of $5288 and deposits in transit of $9325. The bank-side reconciliation would show cash of:
A. 47304
B. 39230
C. 43267
D. 43217
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The correct answers to the questions are as follows:
3. The correct answer is C. Debit Allowance for Doubtful Accounts; credit Accounts Receivable/Margaret. To reinstate Margaret's account, Tammy Company would first record the amount in the Allowance for Doubtful Accounts, as they had previously written off the account of $1,200.
12. The correct answer is B. Research and development costs (R&D) are expensed and become part of the income statement. R&D costs are considered to be an expense incurred to develop new products or improve existing ones.
18. The correct answer is A. Jewell Company's debt ratio is calculated by dividing total liabilities ($44,000 + $90,000) by total assets ($56,000 + $135,000). The debt ratio is then multiplied by 100 to express it as a percentage. In this case, the debt ratio is 90,000 / 191,000 * 100 = 47.12%. So none of the given answer choices are correct.
24. The correct answer is C. Available-for-sale securities. Marketable securities are typically reported at fair value on the balance sheet, but available-for-sale securities are reported at cost or fair value, whichever is lower.
27. The correct answer is A. By not accruing warranty expense, reported expenses will be understated, and net income will be understated. Accruing warranty expense is necessary to match the estimated cost of warranty repairs with the income earned during the same period.
30. The correct answer is A. Available-for-sale and trading securities. Marketable securities can be classified as available-for-sale, held-to-maturity, or trading securities. Available-for-sale and trading securities are reported at fair value on the balance sheet.
42. The correct answer is D. Cash equivalents are very liquid and carry little risk. Cash equivalents are highly liquid investments that are easily convertible into cash and have a short-term maturity of usually three months or less.
45. The correct answer is A. The asset will be understated by $5,000. Recording a betterment as an ordinary expense will result in an understatement of the asset's value, as the betterment should have been capitalized and added to the asset's cost.
52. The correct answer is A. A note payable with no specified maturity date would not be considered a liability according to FASB's definition of a liability. Liabilities are obligations with an explicit payment term or a legal demand for payment.
58. The correct answer is C. The quick ratio for Nick Company is calculated by subtracting inventory from current assets and dividing the result by current liabilities ($33,000 + $41,000 + $15,000 - $25,000) / $30,000 = 1.78. So, the correct answer is C.
61. The correct answer is A. Use the conservatism principle to estimate warranty liabilities. The conservatism principle advises accountants to err on the side of caution and to recognize potential losses (such as estimated warranty liabilities) as soon as they are probable but not yet definite.
67. The correct answer is C. Pending legal action would be considered a contingent liability. A contingent liability is a potential obligation that depends on future events and may become an actual liability if certain conditions are met.
68. The correct answer is C. A repair that extends the useful life of an asset would be considered a betterment. A betterment increases the asset's value, usefulness, or capacity beyond its original state, and it is capitalized as a betterment, not considered an ordinary repair.
76. The correct answer is C. The journal entry to record the scrapping of the truck would be: debit Cash for $500, debit Accumulated Depreciation—Truck for $50,000, debit Loss on Disposal for $5,500, and credit Truck for $56,000.
81. The correct answer is C. If Brandon uses 5% of credit sales as its method of estimating uncollectible accounts, the credit to the allowance for doubtful accounts would be $85,000 * 5% = $4,250.
90. The correct answer is A. In the first year of the mortgage, Mackey would report the liability as a long-term liability of $100,000. The current portion of the liability (due within one year) would be reported as a current liability.
95. The correct answer is D. The amount at which item C should be recorded is the ratio of the purchase price to the total appraised value multiplied by the appraised value of item C. ($125,000 / ($35,000 + $55,000 + $60,000)) * $60,000 = $50,000.
98. The correct answer is B. The depreciation for the first year under the units of production method is calculated by dividing the total depreciation by the total estimated units and then multiplying it by the actual number of units produced in the first year. (($125,000 - $10,000) / 50,000) * 14,500 = $29,167.
99. The correct answer is B. Bad-debt expenses are not a benefit to extending credit to customers. Bad-debt expenses represent the losses incurred from customers who fail to pay their debts, which is a cost or negative impact on the company's profitability.