Harvard Financial Accounting Exam Help

Harvard Financial Accounting Exam Help

harvard financial accounting exam helpQ1. The next seven questions are based on Panjim Trading Company’s cash T-account for 2015. Based on Panjim’s 2015 cash T-account, which one of the following statements must be true?

  • During 2015, Panjim’s total merchandise sales were $60,000.
  • During 2015, Panjim’s total merchandise purchases were $44,000.
  • During 2015, Panjim issued $75,000 of debt.
  • Panjim did not record any tax expense for 2015.

Q2. The next six questions refer to Carlita Company’s 2014 Income Statement. Carlita’s 2014 gross margin percentage is _______.

  • 50%
  • 33%
  • 30%
  • 25%

Q3. June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market value over the next two months. How would this transaction be recorded by Silica Labs?

  • Debit patent account $700,000; credit cash $500,000; credit common stock $200,000
  • Debit cash $500,000; debit common stock $200,000; credit patent account $700,000
  • Debit cash $500,000; credit patent account $500,000
  • Debit patent account $500,000; credit cash $500,000

Q4. Which one of the following is an item of owners’ equity?

  • Bank loan
  • Suppliers’ monetary claims
  • Prepaid expenses
  • Earnings generated by the entity

Q5. Quentin’s total debt to equity ratio on December 31, 2014, is _______.

  • 2.12
  • 1.52
  • 1.19
  • 0.53

Q6. Panjim’s 2015 cash flow from investing activities is

  • a net outflow of $7,000.
  • a net inflow of $3,000.
  • a net inflow of $7,000.
  • a net outflow of $3,000

Q7. Complete the following sentence: The Conservatism Concept directs an entity to consider recognizing a liability when it is __________________.

  • absolutely certain economic resources may be sacrificed in the future
  • remotely possible economic resources may be sacrificed in the future
  • reasonably possible economic resources may be sacrificed in the future
  • reasonably certain economic resources may be sacrificed in the future

Q8. Panjim’s prepaid expense account consists only of garage rental prepayments. Its 2015 beginning and ending balance were the same. Which one of the following statements must be true?

  • Panjim had no garage rental expenses during 2015
  • Panjim’s prepaid expense account balance never varied during 2015
  • Panjim’s prepaid expense account balance varied during 2015
  • None of the above statements is true

Q9. During 2014, Carlita’s competitor Farside had double the sales of Carlita, but it also earned a gross margin of $30,000. What was Farside’s 2014 gross margin percentage?

  • 25%
  • 50%
  • 12.5%
  • Insufficient information; cannot be calculated

Q10. The realization concept states that revenue is recorded when

  • it has been earned and realized or realizable.
  • all the associated costs have been paid in cash.
  • it has been received in cash.

Q11. Panjim’s 2015 cash flow from financing activities is

  • a net outflow of $91,000.
  • a net inflow of $86,000.
  • a net outflow of $86,000.
  • a net inflow of $91,000.

Q12. Panjim began 2015 with salaries payable balance of $75,000. It had 2015 salary expense of $80,000. Its 2015 ending salaries payable balance must be _______.

  • $95,000
  • $55,000
  • $155,000
  • $105,000

Q13. On January 1, 2015, Jon Sports has a bond payable of $200,000. During 2015, it pays off $20,000 of the outstanding bond principal and issues a new $70,000 bond. There are no other transactions related to the bond payable account. What is Jon Sports’ December 31, 2015, bond payable balance?

  • A debit balance of $250,000
  • A credit balance of $150,000
  • A debit balance of $150,000
  • A credit balance of $250,000

Q14. Quentin’s 2014 net income was $5,000. No dividends were declared or paid during 2014. What was Quentin’s retained earnings balance on December 31, 2013?

  • $39,000
  • $49,000
  • $34,000
  • Cannot be estimated

Q15. Quentin’s December 31, 2013, inventory T-account debit balance was $56,000. During 2014, its inventory purchases amounted to $25,000, and there were no inventory-related write-downs or losses. What was Quentin’s 2014 cost of goods sold expense?

  • $5,000
  • $67,000
  • $20,000
  • $45,000

Q16. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:

  • August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
  • August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
  • September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.

On September 5, 2015, when the planters are delivered and the balance of $7,000 due from the customer is collected, which one of the following journal entries best reflects the full economic impact of the special order on Turnadot’s financial condition?

  • Dr. Cash 7,000, Cr. Revenues 7,000 and
    Dr. COGS 4,000, Cr. Inventory 4,000
  • Dr. Cash 7,000, Cr. Revenues 7,000 and
    Dr. Inventory 4,000, Cr. COGS 4,000
  • Dr. Cash 7,000, Dr. Advances from customers (liability) 3,000, Cr. Revenues 10,000 and
    Dr. COGS 4,000, Cr. Inventory 4,000

Q17. Panjim recorded an interest expense of $6,000 for 2015. Which one of the following line items would be included in the operating section of the Panjim’s 2015 indirect method statement of cash flows?

  • Add increase in interest payable…$1,000
  • Subtract increase in interest payable…($1,000)
  • Add increase in interest payable…$6,000
  • Subtract decrease in interest payable…($5,000)

Q18. On its June 30, 2015, balance sheet, Barrows Corporation has total assets of $100,000, current liabilities of $40,000, and owners’ equity of $60,000. Which one of the following statements must be true on June 30, 2015?

  • It has current assets of $40,000
  • It has no long-term liabilities
  • It has a cash balance of $40,000 raised through short-term debt
  • None of the above

Q19. Lucky Lee, a video-game store in New York city, purchases a game machine directly from Taiwan for $30,000. In the U.S., the same machine will probably cost at least $36,000. Pick the most appropriate accounting action for Lucky Lee.

  • Record the machine at $36,000
  • Record the machine at $30,000
  • Record the machine for [($30,000+$36,000)/2] = $33,000
  • Have the machine examined by an independent appraiser and record it at the appraised value

Q20. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:

  • August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
  • August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
  • September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.

On August 5, 2015, which one of the following accounting entries, related to the $10,000 special order, should be recorded in Turnadot’s financial accounting system?

  • Debit accounts receivable $10,000; credit revenues $10,000
  • Debit cash $3,000; credit revenues $3,000
  • Debit cash $3,000; credit a liability ‘advances from customers’ $3,000
  • Debit cash $3,000; debit accounts receivable $7,000; credit revenues $10,000

Q21. Consider the same scenario as in the previous question: June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale date, $200,000 in common stock in Silica Labs. The stock is forecast ed to double in market value over the next two months. Assuming that Silica Labs holds some long-term debt, which of the following describes the effect of the transaction on Silica Labs?

  • Current ratio will decrease and total debt to equity ratio will increase
  • Current ratio will increase and total debt to equity ratio will decrease
  • Current ratio will increase and total debt to equity ratio will increase
  • Current ratio will decrease and total debt to equity ratio will decrease

Q22. The next six questions refer to Quentin Company’s December 31, 2014, Balance Sheet. Quentin began 2014 with the following non-current asset balances: Plant and equipment (net) $59,000; Patent (net) $28,000. No long-term assets were purchased or sold during the year. How much amortization and depreciation expense did Quentin record during 2014?

  • $3,000
  • $4,000
  • $7,000
  • Cannot be estimated

Q23. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:

  • August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
  • August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
  • September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.

On August 5, 2015, which one of the following accounting entries, related to the $1,000 deposit paid to the supplier for the planters, should be recorded in Turnadot’s financial accounting system?

  • Debit the current asset ‘advances to suppliers’ $1,000; credit cash $1,000
  • Debit inventory $1,000; credit cash $1,000
  • Debit cost of goods sold $4,000; credit cash $1,000; credit accounts payable $3,000
  • Debit cost of goods sold $1,000; credit revenues $1,000

Q24. Panjim’s 2015 cash flow from operations is

  • a net outflow of $90,000.
  • a net inflow of $90,000.
  • a net inflow of $85,000.
  • a net outflow of $85,000.

Q25. Carlita began 2014 with a retained earnings account balance of $132,000. During 2014, it declared and paid dividends of $5,000. Its December 31, 2014, retained earnings account balance _______.

  • is $132,000
  • is $120,000
  • is $139,000
  • cannot be calculated

Q26. Neura Pharma, Inc. has purchased a drug patent with a remaining useful life of 13 years. How should this new asset be classified?

  • A current tangible asset
  • A non-current tangible asset
  • A non-current intangible asset
  • A current intangible asset

Q27. Carlita’s 2014 return on sales percentage is _______.

  • 25%
  • 16.67%
  • 15%
  • 10%

Q28. Jackie’s Crafts is a successful retailer of fabric by the yard and other sewing supplies. If Jackie were to shut down the store, the bolts of fabrics and the bins of lace and trim, inventory valued at $20,000, on average, at any point in time, would have to be sold for about 10% of that value. But, Jackie’s accountant does not feel the need to reduce the value of the inventory on the books. This is a reflection of the _______ concept.

  • consistency
  • materiality
  • historical cost
  • going-concern

Q29. On December 31, 2014, Track Record Inc.’s sales people have firm outstanding orders totaling $1.66 million, which, it has guaranteed its customers, will be fulfilled during the month of January 2015. If Track Record includes the $1.66 million in its sales figures for 2014, it will be violating the _______ concept.

  • materiality
  • historical cost
  • dual-aspect
  • realization

Q30. Quentin Company’s year-end 2014 total assets equals its year-end 2014 total liabilities and owners’ equity. This is most likely the result of the company following the:

  • Historical Cost concept
  • Dual-aspect concept
  • Materiality concept
  • Money measurement concept

Q31. Quentin’s current ratio on December 31, 2014, is _______.

  • 1.25
  • 0.80
  • 0.53
  • 1.125

Q32. Carlita began 2014 with a taxes payable account balance of $3,000. On December 31, 2014, its taxes payable account balance is $7,000. How much did Carlita pay to the tax authorities during the year?

  • $2,000
  • $6,000
  • $4,000
  • Cannot be calculated

Q33. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:

  • August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
  • August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
  • September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.

On August 27, 2015, upon delivery of planters to Turnadot’s warehouse and payment of $3,000 balance due to the supplier, which one of the following journal entries best reflects the economic impact of the transaction?

  • Debit inventory $3,000; credit cash $3,000
  • Debit inventory $4,000; credit the current asset ‘advances to suppliers’ $1,000; credit cash $3,000
  • Debit cost of goods sold $4,000; credit cash $3,000; credit accounts payable $1,000
  • Debit inventory $4,000; credit revenues $4,000

Q34. Juan Foods purchases a computer system in 2015 for $20,000. Its expected useful life is 5 years. At the end of 2015, it has to record depreciation on the computer system of $2,000. What is the correct journal entry to record the depreciation?

  • Debit computer system $2,000; credit depreciation expense $2,000
  • Debit accumulated depreciation $2,000; credit computer system $2,000
  • Debit depreciation expense $2,000; credit accumulated depreciation $2,000
  • Debit computer system $2,000; credit accumulated depreciation $2,000

Q35. Which one of the following best describes a balance sheet?

  • A description of the entity’s operations over a period of time
  • A snapshot at a point in time of an entity’s assets, liabilities and owners’ equity
  • A reconciliation of an entity’s bank account balance
  • A description of the company’s cash flows over a period of time

Q36. Carlita began 2014 with an interest payable account balance of $13,000. During 2014, it paid $5,000 in interest to its lenders. On December 31, 2014, what is its interest payable account balance?

  • $15,000
  • $10,000
  • $13,000
  • Cannot be calculated

Q37. To be recorded as an asset, an item must meet four specific conditions. Three of them are: it must have been acquired at measurable cost, it must be obtained or controlled by the entity, and it must have been obtained or controlled in a past transaction. Which one of the following is the fourth condition?

  • The item must have a measurable resale value
  • It must be expected to have future economic benefits
  • It must have been fully paid for
  • The entity must have a legal document confirming ownership of the item

Q38. Turnadot & Sons is a small wholesaler of decorative cast iron objects. The following events, related to a special customer order, occur as described below:

  • August 5, 2015: Turnadot receives the special order for 200 outdoor planters at a selling price of $50 each, including delivery at a future convenient time and location. The customer, with whom Turnadot has had a long-term, trouble-free relationship, pays $3,000 as a deposit and agrees to pay the rest on delivery. Turnadot immediately orders $4,000 worth of planters from its supplier and pays a $1,000 deposit for them.
  • August 27, 2015: Turnadot pays $3,000 balance due to the supplier upon delivery of the planters to its warehouse.
  • September 5, 2015: The customer calls for delivery of the planters, and pays the balance of $7,000 when they arrive at the customer site.

What is the dollar gross margin earned by Turnadot on the special order for 200 planters?

  • $2,000
  • $7,000
  • $9,000
  • $6,000

Q39. Which of the following is the fundamental accounting equation?

  • Current assets + Current liabilities = Owners’ equity
  • Assets + Owners’ equity = Liabilities
  • Cash = Debts + Common stock
  • Assets = Liabilities + Owners’ equity

Q40. Weldon Engineering owes one of its creditors $20,000. To settle the debt, Weldon pays $5,000 cash and also issues common stock valued at $15,000 to the creditor. How would this repayment of the $20,000 debt be recorded in Weldon’s books?

  • Debit debt owed $20,000; credit cash $5,000; credit common stock $15,000
  • Debit common stock $15,000; debit cash $5,000; credit debt owed $20,000
  • Debit common stock $15,000; debit debt owed $5,000; credit cash $20,000
  • Debit debt owed $5,000; credit cash $5,000

Q41. Baxtra, Inc. pays $20,000 in cash as interest to its lenders during 2015. According to U.S. GAAP, in which section of the statement of cash flows would this payment be included?

  • The operating section
  • The financing section
  • The investing section
  • Depends on whether cash flow statement is direct or indirect method.

Q42. During 2015, Sunrise Foods, Inc. records an interest expense of $5,000, and pays $2,000 of it in cash. How should this accounting transaction be recorded?

  • Debit interest expense $5,000; credit cash $2,000; credit taxes payable $3,000
  • Debit interest expense $5,000; credit cash $2,000; credit interest payable $3,000
  • Debit various debt accounts $5,000; credit cash $2,000; credit interest payable $3,000
  • Debit interest expense $5,000; credit cash $2,000; credit various debt accounts $3,000

Q43. Patnode recorded a 2015 tax expense of $3,000. What amount did it pay to the tax authorities during 2015?

  • $2,400
  • $7,000
  • $600
  • $5,400

Q44. During 2015, Patnode had a cash outflow of $15,000 for investing activities and a cash inflow of $7,000 from financing activities. Its 2015 cash flow from operations was an _______.

  • outflow of $15,000
  • inflow of $15,000
  • outflow of $8,000
  • inflow of $8,000

Q45. Anderson Electronics’ 2015 return on sales percentage is 20%. Its 2015 net income is $40,000. What is its 2015 sales?

  • $400,000
  • $80,000
  • $200,000
  • $100,000

Q46. This question is based on Patnode Inc.’s balance sheets at year end 2014 and 2015. During 2015, Patnode announced and paid dividends of $1,000, the only dividend-related activity during the year. What was its 2015 net income?

  • $5,600
  • $3,600
  • $4,600
  • Cannot be estimated

Q47. Annie’s Fitness sells a set of free weights to a customer for which Annie’s had paid $750. Which one of the following statements describes the most appropriate accounting for the transaction?

  • Debit cost of goods sold expense $750; credit cash $750
  • Debit inventory $750; credit cost of goods sold expense $750
  • Debit cost of goods sold expense $750; credit inventory $750
  • Debit inventory $750; credit accounts payable $750

Q48. Juan Foods pays off a long-term debt in full. Which one of the following statements describes the effect of the transaction on Juan Foods?

  • Current ratio increases; total debt to equity ratio decreases
  • Current ratio decreases; total debt to equity ratio decreases
  • Current ratio decreases; total debt to equity ratio increases
  • Current ratio increases; total debt to equity ratio increases

Q49. On December 31, 2015, Juan Foods purchases a van for $12,000. How does the purchase of the van affect Juan Foods’ 2015 income statement?

  • Decreases sales by $12,000
  • Increases operating expenses by $12,000
  • No material effect
  • Increases cost of goods sold by $12,000

Q50. Which one of the following statements is not true about statements of cash flows prepared according to U.S. GAAP?

  • The operating section of the indirect method starts with the net income of the period.
  • In the indirect method statement, the period’s depreciation is added to net income because it is a source of cash.
  • Interest payments are included in the operating section of the direct method statement.
  • The investing section of the direct method statement for a period is identical to the investing section of the indirect method statement for the same period.

Q51. A company raised $50,000 in cash by taking a one-year loan of $10,000 and a 5-year loan of $40,000. Which of the following is the correct journal entry to record this transaction?

  • Debit short-term debt $40,000; debit retained earnings $10,000; credit cash $50,000
  • Debit short-term debt $50,000; credit cash $50,000
  • Debit cash $50,000; credit long-term debt $50,000
  • Debit cash $50,000; credit short-term debt $10,000; credit long-term debt $40,000

Q52. What is Patnode’s total debt to equity ratio at the end of 2014 (rounded to two decimal places)?

  • 5.30
  • 0.19
  • 0.25
  • 4.04

Q53. Which one of the following statements describes the rules about posting transactions into T-accounts in the ledger?

  • For assets, debits are entered on the left; for liabilities, credits are entered on the left
  • For assets, credits are entered on the left; for liabilities, debits are entered on the left
  • Debits on the left; credits on the right
  • Credits on the left; debits on the right

Q54. Consider the same scenario as in the previous question: On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April, Cars pays Preston $12,000 against the amount owed to Preston. If Preston had no other sales and records no other collections from customers during the month of April, the operating section of Preston’s indirect method statement of cash flows for April will show the following de-accrual adjustments to net income:

  • Subtract change in accounts receivable; add change in inventory
  • Add change in accounts receivable; subtract change in inventory
  • Add change in accounts receivable; add change in inventory
  • Subtract change in accounts receivable; subtract change in inventory

Q55. Turnkey Systems, Inc. began the month of June, 2014 with a prepaid expenses balance of $240,000. During the month, debits totaling $110,000 and credits totaling $80,000 were made to the prepaid expenses account. What was the June, 2014 ending balance of prepaid expenses?

  • A debit balance of $210,000
  • A credit balance of $210,000
  • A debit balance of $270,000
  • A credit balance of $270,000

Q56. Juan Foods pays off a long-term debt in full. Which one of the following statements best describes the appropriate book-keeping for this transaction?

  • Debit cash; credit long-term debt
  • Debit long-term debt; credit owners’ equity
  • Debit owners’ equity; credit long-term debt
  • Debit long-term debt; credit cash

Q57. Pentex and Marbro, small companies in the stationery business, each had a dollar gross margin of $20,000 during September 2014. Pentex’s September sales were twice that of Marbro’s. If Pentex’s gross margin as a percentage of sales for September was 10%, what was Marbro’s gross margin as a percentage of sales for the same period?

  • 10%
  • 5%
  • 20%
  • Cannot be calculated

Q58. On March 31, 2015, Cars, Inc. owes Preston Devices, one of its suppliers, $25,000 for previous purchases. During April 2015, Preston sells Cars devices with a sales price of $10,000 and a cost to Preston of $8,000. During April, Cars pays Preston $12,000 against the amount owed to Preston. What is the effect of these April transactions on Preston’s balance sheet?

  • Cash increased by $12,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings increased by $2,000
  • Accounts receivable increased by $2,000; inventory decreased by $8,000; cash increased by $12,000; retained earnings increased by $12,000
  • Cash increased by $12,000; retained earnings decreased by $2,000; inventory decreased by $10,000; accounts receivable decreased by $12,000
  • Cash increased by $2,000; accounts receivable decreased by $2,000; inventory decreased by $8,000; retained earnings decreased by $12,000

Q59. Sandy Robbins is the sole owner of a hair salon. He often takes small amounts of “lunch money” from the cash register, figuring that “it is my business anyway.” His accountant, however, insists that Sandy make a note of the cash he takes, and at the end of the each accounting period, she debits owners’ equity and credits the cash account for the total amount that Sandy has taken during the period. In recording the cash withdrawals even though Sandy is sole proprietor, the accountant is correctly applying the _______ concept.

  • matching
  • entity
  • materiality
  • conservatism

Q60. Barnaby & Sons receives a large shipment of goods from its supplier. It pays $58,000 at the time of delivery and promises to pay the remaining $42,000 within the next two months. What is appropriate journal entry for this transaction?

  • Debit cash $42,000; debit inventory $16,000; credit accounts payable $58,000
  • Debit inventory $100,000; credit cash $58,000; credit accounts payable $42,000
  • Debit accounts payable $58,000; credit cash $42,000; credit inventory $16,000
  • Debit accounts payable $58,000; debit cash $42,000; credit inventory $100,000

Q61. When an entity recognizes revenue before it has received cash for the sale, it records an increase in a(n) _______.

  • liability such as ‘Advances from customers’
  • accounts payable
  • accounts receivable
  • prepaid expense

Q62. Patnode’s 2015 statement of cash flows contains four items in the financing section. Three of them are Short-term debt issued, $15,000; Short-term debt paid, ($10,000); and Dividends paid, ($1,000). What is the fourth item in the financing section?

  • Retained earnings, $4,600
  • Common stock issued, $3,000
  • Long-term debt paid, ($3,000)
  • Cash from financing, $3,000

Q63. On June 1, 2015, Planet Music has accounts payable of $45,000. During the month, debits of $3,000 and credits of $11,000 were made to the account. At the end of June 2015, what was the accounts payable balance?

  • A credit balance of $53,000
  • A debit balance of $42,000
  • A credit balance of $56,000
  • A debit balance of $53,000

Q64. On April 30, 2015, Zono Electronics, Inc. made a payment of $3,500 to Imperial Distributors, a supplier. Choose the statement that best describes the recording of this financial transaction by Imperial Distributors.

  • Debit cash $3,500; credit accounts payable $3,500
  • Debit accounts receivable $3,500; credit cash $3,500
  • Debit accounts payable $3,500; credit cash $3,500
  • Debit cash $3,500; credit accounts receivable $3,500

Q65. Annie’s Fitness sells a set of free weights to a customer for $1,000. The customer pays $600 in cash and puts the rest on her store credit account. Which one of the following statements describes the most appropriate accounting for the transaction?

  • Debit cash $600; debit accounts receivable $400; credit cost of good sold $1000
  • Debit cash $600; debit accounts receivable $400; credit revenues $1,000
  • Debit revenues $1,000; credit cash $600; credit accounts receivable $400
  • Debit cash $600; debit accounts receivable $400; credit inventory $1,000

Q66. Which one of the following items will not appear in the operating section of Patnode’s 2015 indirect method cash flow statement?

  • Deduct: increase in accounts receivable $3,000
  • Add: decrease in accounts payable $1,000
  • Add: increase in taxes payable $2,400
  • Add: decrease inventories $6,000

Q67. Planet Music buys all of its inventory on credit. During 2015, Planet Music’s inventory account increased by $10,000. Which of the following statements must be true for Planet Music during 2015?

  • It made payments of less than $10,000 to suppliers.
  • It made cash payments of $10,000 to suppliers.
  • It made more cash payments to its suppliers than it recorded as cost of goods sold.
  • It paid less cash to suppliers than it recorded as cost of goods sold.

Q68. How much total depreciation and amortization expense did Patnode record during 2015?

  • $10,000
  • $6,000
  • $3,000
  • $5,000

Q69. During 2015, Patnode recorded sales of $17,000. How much cash did it collect from its customers?

  • $17,000
  • $14,000
  • $3,000
  • Cannot be estimated

Q70. Baxtra, Inc. pays $20,000 in cash as interest to its lenders during 2015. According to U.S. GAAP, in which section of the statement of cash flows would this payment be reflected?

  • The operating section
  • The financing section
  • The investing section
  • Depends on whether cash flow statement is direct or indirect method.

Q71. What is Patnode’s current ratio at the end of 2014?

  • 2.46
  • 0.41
  • 1.12
  • 0.89

Q72. Sardi Company estimates its 2015 tax expense to be $80,000. It makes a cash payment of $20,000 to the tax authorities on December 31, 2015. How should this transaction be recorded by Sardi?

  • Debit tax expense $80,000; credit cash $60,000; credit taxes payable $20,000
  • Debit tax expense $80,000; credit cash $20,000; credit taxes payable $60,000
  • Debit tax expense $80,000; credit cash $20,000
  • Debit tax expense $80,000; credit cash $20,000; credit accounts payable $60,000

Q73. Taylor Company had a salaries payable balance of $18,000 on December 31, 2014. During 2015, it paid $50,000 in cash as salaries, and recorded a salary expense of $50,000. What is its December 31, 2015, salaries payable balance?

  • $50,000
  • $18,000
  • $100,000
  • Cannot be determined from the information provided

Q74. Kirby, Inc. records a sale with a gross margin of $1,400. Which one of the following statements correctly describes the effect of such a sale on its balance sheet?

  • Common stock increases by $1,400
  • The sales revenue account increases by $1,400
  • The gross margin account increases by $1,400
  • The retained earnings account increases by $1,400

Q75. On January 1, 2015, Mansfield Company has a retained earnings balance of $256,000. During 2015, its net income is $44,000 and it announces and pays $12,000 in dividends. There is no other dividend-related activity during the year. Its December 31, 2015, retained earnings balance is _______.

  • $212,000
  • $288,000
  • $300,000
  • $224,000

Q76. To be recorded as a liability, an item must meet three specific conditions. Two of them are: it must involve probable future sacrifice of economic resources by the entity, and it must be a present obligation that arose as a result of a past transaction. Which one of the following is the third condition?

  • The item must reduce the market value of the recording entity.
  • It must involve a transfer of resources to another entity.
  • It must involve the expenditure of cash now or in the future.
  • It must not cause total liabilities to exceed total assets.

Q77. The fundamental accounting equation is a reflection of the _______ concept.

  • money measurement
  • conservatism
  • dual-aspect
  • historical cost

Q78. During June 2015, Bextra Inc. recorded sales of $55,000 but only $20,000 was collected in cash from customers. Cost of goods sold was $38,000. What was the effect of these sales on Bextra’s current ratio?

  • Current ratio increases
  • Current ratio decreases
  • Current ratio remains unchanged
  • Insufficient information provided to judge effect on current ratio

Q79. Jon Sports’ inventory account increased from $25,000 on December 31, 2013, to $30,000 on December 31, 2014. Which one of the following items would be included in the operating section of its 2014 indirect method statement of cash flows?

  • Add increase in inventory $5,000
  • Subtract increase in inventory ($5,000)
  • Add inventory balance $20,000
  • Subtract inventory balance ($20,000)

Q80. Juan Foods makes a cash sale with a positive gross margin. Which one of the following statements describes the effect of the sale on Juan Foods?

  • Current ratio increases
  • Current ratio decreases
  • No change to Juan Foods’ current ratio
  • Insufficient information to judge effect on current ratio

Q81. The historical cost concept reflects the fact that financial accounting practice favors

  • reliability over relevance.
  • management’s best guess over historical financial information.
  • relevance over reliability.
  • consensus market values over historical financial information.

Q82. ABC signed a 5-year operating lease agreement whereby WXY Rentals will provide a truck which cost WXY $20,000. The lease payments are $2,500, payable at the end of each year. The truck will revert to WXY at the end of five years. The truck has a 10-year useful life. At the inception of the lease, what should ABC do?

  • Make no journal entry
  • Record rental expense of $2,500 for the first year’s rental
  • Record the lease asset and a corresponding liability, at its current market value
  • Record the lease asset and a corresponding liability, at the present value of the five equal annual lease payments

Q83. Here is International Corp.’s income statement for the month of December. What is the company’s December EBITDA to total interest coverage ratio?

  • 6.5x
  • 18.5x
  • 14.5x
  • 20.2x

Q84. On January 1, 2013, Dana Corporation purchased equipment for $450,000. Installation costs were an additional $50,000. The equipment’s useful life was estimated at 5 years, with a salvage value of $25,000. The company planned to depreciate the equipment over five years using the straight-line method for reporting purposes and the double declining balance method for tax purposes. Dana Corporation’s accumulated depreciation at December 31, 2014 for reporting purposes and for tax purposes, respectively, will be:

  • $190,000 and $304,000
  • $180,000 and $320,000
  • $190,000 and $320,000
  • $200,000 and $304,000

Q85. In December, a Global Grocer customer pays in time and receives a 2% discounts for prompt payment. The customer had purchased goods worth $500. Which of the possible answers below correctly states the journal entries to record the payment and the discount taken. Previously, Global Grocer had established an allowance for prompt payment discounts.

  • Debit Accounts receivable ($500); Credit Cash ($490); credit allowance for discounts ($10)
  • Debit Cash ($500); Credit Accounts receivable ($500)
  • Debit Cash ($490); Debit Allowance for sales discounts ($10); Credit Accounts receivable ($500)
  • None of the above

Q86. What is the major accounting difference between interest incurred during a period and cash dividends declared during the same period?

  • Interest decreases retained earnings while dividend declared increases retained earnings
  • Interest reduces net income while dividends declared do not affect net income
  • Interest does not affect net income while dividends reduce net income
  • There is no major difference. Both are treated identically for accounting purposes.

Q87. A customer is currently suing a company. A reasonable estimate can be made of the costs that would result from a ruling unfavorable to the company, and the amount involved is material. The company’s managers, lawyers, and auditors agree that there is only a remote likelihood of an unfavorable ruling. This contingency

  • should be disclosed in a footnote.
  • should be disclosed as a parenthetical comment in the balance sheet.
  • need not to be disclosed.
  • should be disclosed by an appropriation of retained earnings.

Q88. On June 30, 2010, Microsoft Corporation was holding $4.8 billion of cash that it had collected from customers in advance for future software licenses and the future delivery of other products and services. In its financial statements, Microsoft classified and recorded this amount as

  • part of revenue on its income statement.
  • the asset Accounts Receivable on its balance sheet.
  • the liability Unearned Revenue on its balance sheet.
  • an expense on its income statement.

Q89. For accounting purposes, goodwill

  • is recorded whenever a company achieves a level of net income that exceeds the industry average.
  • is recorded when a company purchases another business.
  • is expensed in the period it is recorded because benefits from goodwill are difficult to identify.
  • is never recorded.

Q90. Downey Company bought a delivery truck for $62,000 on January 1, 2015. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the double declining-balance method, how much is the truck’s depreciation expense for 2016?

  • $11,680
  • $12,144
  • $10,400
  • $11,760

Q91. The Hasting Company began operations on January 1, 2013 and uses the FIFO method in costing its raw material inventory. An analyst is wondering what net income would have been if the company had consistently followed LIFO (instead of FIFO) from the beginning, 1/1/2013. He has the following information available to him:

What would net income have been in 2014 if Hastings had used LIFO since 1/1/2013?

  • $110,000
  • $150,000
  • $170,000
  • $230,000

Q92. On January 1, 2007, Phillips, Inc. leased a new machine from U.S. Leasing. The specific information on the lease is as follows:

  • $275,000
  • $359,464
  • $0
  • $250,000

Q93. ABC expenses stock options as required by GAAP. On January 1, 2015, ABC granted 50 key executives 100 options each. Each option entitled the option holder to purchase 1 share of ABC common stock at $60 per share. The options will vest on January 1st 2018. On the grant date, January 1st, 2015, the stock was quoted on the stock exchange at $63 per share. The fair value of the options on the grant date was estimated at $15 per option. The amounts of compensation expense ABC should recognize with respect to the options during 2015, 2016, and 2017 are:

  • 1
  • 2
  • 3
  • 4

Q94. On June 30, 2011, Cole Inc., exchanged 3,000 shares of Stone Corp. $30 par value common stock for a patent owned by Gore Co. The Stone stock was acquired in 2009 at a cost of $80,000. At the exchange date, Stone common stock had a fair value of $45 per share, and the patent had a net carrying value of $160,000 on Gore’s books. Cole should record the patent at:

  • $80,000
  • $90,000
  • $135,000
  • $160,000

Q95. Denny Co. sells major household appliance service contracts for cash. The service contracts are for a one-year, two-year, or three-year period. Cash receipts from contracts are credited to Unearned Service Revenues. This account had a balance of $900,000 at December 31, 2011 before year-end adjustment. Service contracts still outstanding at December 31, 2011 expire as follows:

What amount should be reported as Unearned Service Revenues in Denny’s December 31, 2011 balance sheet?

  • $900,000
  • $600,000
  • $,500,000
  • $300,000

Q96. The following financial ratios are for Average Corp. and Superior Corp., two hardware stores.

Which of the following statements is inconsistent with the above ratios?

  • Superior Corp has a higher return on equity primarily because it has a significantly higher net income margin
  • Average Corp. on a relative basis uses significantly more debt financing than Superior Corp.
  • Average Corp. utilizes its assets more effectively than Superior Corp.
  • Superior Corp. generates more income per dollar of sales than Average Corp.

Q97. Which of the following situations will not cause a deferred income tax amount to be recorded?

  • An expense that is recognized in 2015 for income tax purposes and in 2016 for financial statement purposes.
  • Interest income from municipal bonds that is recognized in 2015 for financial statement purposes but is tax exempt for income tax purposes.
  • A revenue is recognized in 2015 for income tax purposes and in 2016 for financial statement purposes.
  • None of the above situations would cause a deferred income tax amount.

Q98. Goodwill should

  • be written off as soon as possible against retained earnings.
  • absent impairment, not be written off because it has an indefinite life.
  • written off as soon as possible as an expense.
  • amortized over a maximum of forty years.

Q99. Before closing entries were recorded at the end of the accounting period (December 31, 2015), the following data were taken from the accounts of Buynow Corporation:

The total amount of owners’ equity that should be reported on the balance sheet dated December 31, 2015, after all the closing entries, is

  • $338,000
  • $128,000
  • $300,000
  • $304,000

Q100. Ignoring any related tax implications, what is the effect on a company’s balance sheet when depreciation expense is recognized?

  • This transaction affects only the income statement, so no change on the balance sheet will occur.
  • Total assets and total stockholder’s equity will decrease by the same amount.
  • There will be no change in the total assets, liabilities and stockholders equity accounts.
  • Total liabilities will increase and total stockholder’s equity will decrease by the same amount.

Q101. Merry Co. purchased a machine costing $125,000 for its manufacturing operations and paid shipping costs of $20,000. Merry spent an additional $10,000 testing and preparing the machine for use. What amount should Merry record as the cost of the machine?

  • $155,000
  • $145,000
  • $135,000
  • $125,000

Q102. Freeman, Inc., reported net income of $40,000 for 2015. However, the company’s income tax return excluded a revenue item of $3,000 (reported on the income statement) because under the tax laws the $3,000 would not be reported for tax purposes until 2016. Assuming a 30% income tax rate, this situation would cause a 2015 deferred tax amount of

  • $3,000 asset.
  • $3,000 liability
  • $ 900 asset.
  • $ 900 liability.

Q103. Use the following information to answer the next two questions.

Downey Company bought a delivery truck for $62,000 on January 1, 2015. They installed a rear hydraulic lift for $8,000 and paid sales tax of $3,000. In addition, Downey paid $2,400 for a one-year insurance policy. They estimate the useful life of the truck to be 10 years and its residual value to be $8,000.

If Downey uses the straight-line method of depreciation, what is the depreciation expense for 2016 and book value at the end of 2016?

  • $7,300 and $58,400
  • $6,500 and $60,000
  • $6,790 and $62,320
  • $6,500 and $66,500

Q104. All of the following would qualify a lease as a capital lease except:

  • The lease term is 80% of the asset’s estimated useful life.
  • The lease agreement contains a bargain purchase option.
  • The present value of the lease payments equals 70% of the fair market value of the leased asset.
  • Title to the leased asset transfers to the lessee at the end of the lease term.

Q105. FRC Inc. acquired Marketing Inc on 1/1/2014. Marketing Inc. has 10,000 shares outstanding. Each share in Marketing Inc. was exchanged for half a share in FRC, Inc. Shares of FRC Inc., were trading at $100 per share at the date of the announcement of the transaction. Marketing Inc, had the following assets and liabilities that were assumed by FRC Inc.

The amount of Goodwill recognized by FRC, Inc. on January 1, 2014 is:

  • $400,000
  • $360,000
  • $495,000
  • $455,000

Q106. The Hastco Company had the following balances in their stockholders’ equity accounts as of December 31, 2010:
Paid-in Capital: $53,000, Retained Earnings: $31,000. During the year ended December 31, 2010, the Hastco Company generated $36,000 in net income, and declared and paid $16,000 in Dividends. The ending balance in the retained earnings account at December 31, 2009 was:

  • $11,000
  • $37,000
  • $5,000
  • $61,000

Q107. Which statement is false?

  • An unrealized gain or loss on hold-to-maturity marketable securities is recognized in income.
  • An unrealized gain or loss on trading securities is recognized in income.
  • An unrealized gain or loss on a company’s common stock held by the owners’ of the company is not recognized by the company.
  • An unrealized gain or loss on available-for-sale marketable securities is not recognized in income

Q108. International, Inc. established an allowance for bad debts at the end of October. In November, International wrote off a $500 account receivable because payment was considered to be remote. What would be the effect of the $500 account receivable write-off on International’s November financial statements?

  • Assets would decrease, liabilities would remain constant and retained earning would decrease.
  • Assets would remain constant; liabilities would increase and retained earnings would decrease.
  • No change would be made in total assets, liabilities or shareholder’s equity.
  • Assets would decrease, liabilities would decrease and retained earnings would remain constant.

Q109. In periods with rising prices and increasing quantities of inventories, which of the following relationships among inventory valuation methods is generally correct?

  • FIFO has a higher inventory balance and a lower net income than LIFO.
  • FIFO has a higher inventory balance and a higher net income than LIFO.
  • LIFO has a higher inventory balance and a higher net income than FIFO.
  • LIFO has a higher inventory balance and a lower net income than FIFO.

Q110. The ABC Company operates a catering service specializing in business luncheons for large corporations. ABC requires customers to place their orders 2 weeks in advance of the scheduled events. ABC bills its customers on the tenth day of the month following the date of service and requires that payment be made within 30 days of the billing date. Collections from customers have never been an issue in the past. ABC should recognize revenue from its catering services at the date when a

  • customer places an order
  • luncheon is served.
  • billing is mailed.
  • customer’s payment is received.

Q111. Which of the following is/are criteria for recognizing revenue from a sale?

  • Title and risks of ownership have been exchanged.
  • The company is reasonably assured of collecting the receivable.
  • The customer has, in turn, sold the product to its own customer.
  • Both title and risks of ownership have been exchanged and the company is reasonably assured of collecting the receivable.

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