Question 1

Allowance for Doubtful Accounts is reported in the:

Accepted Answer

Allowance for Doubtful Accounts is an estimation of the amount of accounts receivables that may not be collected. It is reported as a contra asset in the balance sheet to reduce the reported amount of accounts receivable to their net realizable value.

Question 2

Gordan Company sold old equipment for $40,000. The equipment had a cost of $100,000 and accumulated depreciation of $50,000. The entry to record the sale of the equipment would include a:

Accepted Answer

The book value of the equipment is $50,000 ($100,000 cost - $50,000 accumulated depreciation). Selling it for $40,000 results in a $10,000 loss ($50,000 book value - $40,000 sale price).

Question 3

The cost of intangible assets should be:

Accepted Answer

Intangible assets are amortized over their estimated useful life or their legal life, whichever is shorter, to systematically allocate their cost over the period they are expected to provide economic benefits.

Question 4

In a period of rising prices, the inventory method that results in the lowest income tax payment is:

Accepted Answer

LIFO (Last-in, First-out) assumes that the most recently purchased items are sold first, which means that the cost of goods sold (COGS) includes the cost of the most recently purchased and generally more expensive items. This results in a higher cost of goods sold and therefore lower taxable income, which leads to the lowest income tax payment during periods of rising prices.

Question 5

Which of the following errors will cause a trial balance to be out of balance? The entry to record a payment on account was:

Accepted Answer

Option C will cause the trial balance to be out of balance because it involves debiting two accounts (Cash and Accounts Payable) without a corresponding credit entry, violating the double-entry accounting principle where total debits must equal total credits.

Question 6

Helix Company has a $280,000 balance in Accounts Receivable and a $2,000 debit balance in Allowance for Doubtful Accounts. Credit sales for the period totaled $1,800,000. What is the amount of the bad debt adjusting entry if Helix uses a percentage-of-receivables basis (at 10%)?

Accepted Answer

The bad debt adjusting entry is calculated as follows:Bad debt expense = Credit sales * Bad debt percentageBad debt expense = $1,800,000 * 10%Bad debt expense = $180,000The adjusting entry is:Bad debt expense $180,000Allowance for doubtful accounts $180,000

Question 7

Land should be recorded on Poin's books at:

Accepted Answer

Land should be recorded at its acquisition cost, which includes the purchase price and all expenditures necessary to get the land ready for its intended use. This includes the purchase price of $330,000, legal fees of $2,000, delinquent property taxes paid by Poin of $4,000, and the cost of clearing the land of $50,000. The total acquisition cost is $330,000 + $2,000 + $4,000 + $50,000 = $386,000.

Question 8

All of the following are intangible assets except:

Accepted Answer

Intangible assets are assets that do not have a physical presence. Patents, goodwill, and franchises are intangible assets. Land improvements are considered tangible assets, as they are improvements made to a physical piece of property.

Question 9

Shipping terms of FOB destination mean that the:

Accepted Answer

FOB destination means the seller is responsible for shipping charges until the goods reach the buyer's location, so the shipping charges are recorded as Freight-Out by the seller.

Question 10

When the allowance method is used for bad debts, the entry to write off an individual account known to be uncollectible involves a:

Accepted Answer

When an individual account is known to be uncollectible and the allowance method is used for bad debts, the entry to write it off involves debiting the Allowance account and crediting the Accounts Receivable account. This is because the company has already set aside funds in the Allowance account to cover such uncollectible accounts, so the entry to write off the account reduces the balance in both Accounts Receivable and Allowance accounts.

Question 11

The building should be recorded on Poin's books at:

Accepted Answer

The building should be recorded at its purchase price plus any costs necessary to get it ready for its intended use. This includes the purchase price, legal fees, survey costs, and any other direct costs related to the purchase.

Question 12

A daily cash count of register receipts made by a cashier department supervisor demonstrates an application of which of the following internal control principles?

Accepted Answer

The daily cash count of register receipts made by a cashier department supervisor is an example of independent internal verification, which is one of the internal control principles. This principle involves the review, comparison, and reconciliation of data by personnel who are not directly involved in the activity being verified, such as a supervisor double-checking the work of a cashier.

Question 13

The assumption that assumes a company will continue in operation long enough to carry out its existing objectives is the:

Accepted Answer

The going concern assumption assumes that a company will continue in operation long enough to carry out its existing objectives. It is a foundational assumption in financial reporting, as it affects the valuation of assets and liabilities, as well as the calculation of depreciation and amortization expense.

Question 14

If merchandise is sold for $2,000 subject to credit terms of 2/10, n/30, the entry to record collection in full within the discount period would include a:

Accepted Answer

The discount is 2% of $2,000, which is $40. The entry would include a debit to Sales Discounts for $40 to account for the discount given.

Question 15

The constraint of conservatism is best expressed as:

Accepted Answer

The constraint of conservatism states that when in doubt, choose the method that will least likely overstate assets and net income. This means that conservative estimates should be used when there is uncertainty or ambiguity in the financial statements.

Question 16

One of the two constraints in accounting is:

Accepted Answer

Materiality is one of the two constraints in accounting which states that a company should only record information that is material, or significant, in order to ensure efficient use of resources and prevent overwhelming users with irrelevant information. The other constraint is relevance, but only one option can be chosen. Comparability and faithful representation are characteristics of useful financial information.

Question 17

Benson Supply bought equipment at a cost of $72,000 on January 2, 2008. It originally had an estimated life of ten years and a salvage value of $12,000. Benson uses the straight-line depreciation method. On December 31, 2012, Benson decided the useful life likely would end on December 31, 2013, with a salvage value of $6,000. The depreciation expense recorded on December 31, 2012, should be:

Accepted Answer

To calculate the depreciation expense for 2012, we need to find the asset's book value as of December 31, 2012, and subtract it from the original cost.

The asset was purchased for $72,000, and we know it has an estimated salvage value of $6,000 at the end of its useful life. Over the original 10-year life, the asset would have depreciated by ($72,000 - $12,000) / 10 = $6,000 each year.

From January 2, 2008 (the purchase date) to December 31, 2012 (the end of the fifth year), the asset would have depreciated by a total of 5 x $6,000 = $30,000.

As of December 31, 2012, the asset would have a remaining useful life of only one year, and a book value of $36,000 ($72,000 - $30,000 - $6,000).

If Benson now expects the asset to have a salvage value of only $6,000 at the end of its life, the total depreciation over the entire 6-year life (from 2008 to 2013) would be ($72,000 - $6,000) / 6 = $11,000 per year.

The depreciation expense for 2012 would then be the difference between the asset's book value as of December 31, 2012 ($36,000) and its expected book value at the end of 2013 ($6,000), or $30,000.

Therefore, the correct answer is B) $21,000.

Question 18

In order to be relevant, accounting information must:

Accepted Answer

Accounting information must help predict future events to be considered relevant, as it allows users to make informed decisions about the future based on past and present financial data.

Question 19

The preparation of closing entries:

Accepted Answer

The preparation of closing entries is necessary before financial statements can be prepared. Closing entries transfer the balances in all temporary accounts (revenue, expense, and dividend accounts) to Retained Earnings, resulting in zero balances in these accounts at the end of the period. This prepares the accounts for the following period's transactions.

Question 20

On November 30, Thatcher Company issued a $12,000, 6%, 6-month note to the National Bank. The entry on Thatcher's books to record the payment of the note at maturity will include a credit to Cash for:

Accepted Answer

The correct entry includes the principal amount of $12,000 plus 6 months of interest at 6% per annum. Interest = $12,000 * 6% * (6/12) = $360. Therefore, the total payment is $12,000 + $360 = $12,360.

Quiz 11: Reporting and Analyzing Stockholders Equity