.Under the allowance method of recognizing uncollectible accounts, the entry to write off an uncollectible account a.

increases the allowance for uncollectible accounts. b. has no effect on the allowance for uncollectible accounts. c. has no effect on net income. d. decreases net income. 2. The following accounts were abstracted from Todd Co.'s unadjusted trial balance at December 31, 2007: Debit Credit Accounts receivable $750,000 Allowance for uncollectible accounts 8,000 Net credit sales $3,000,000 Todd estimates that 2% of the gross accounts receivable will become uncollectible. After adjustment at December 31, 2007, the allowance for uncollectible accounts should have a credit balance of a. $60,000. b. $52,000. c. $23,000. d. $15,000. 3. On January 1, 2006, Marr Co. exchanged equipment for a $400,000 zero-interestbearing note due on January 1, 2009. The prevailing rate of interest for a note of this type at January 1, 2006 was 10%. The present value of $1 at 10% for three periods is 0.75. What amount of interest revenue should be included in Marr's 2007 income statement? a. $0 b. $30,000 c. $33,000 d. $40,000 In preparing its August 31, 2007 bank reconciliation, Adel Corp. has available the following information: Balance per bank statement, 8/31/07 Deposit in transit, 8/31/07 Return of customer's check for insufficient funds, 8/30/07 Outstanding checks, 8/31/07 Bank service charges for August At August 31, 2007, Adel's correct cash balance is a. $22,800. b. $22,200. c. $22,100. $21,650 3,900 600 2,750 100

4.

d. $20,500.

5.

Sandy, Inc. had the following bank reconciliation at March 31, 2007: Balance per bank statement, 3/31/07 Add: Deposit in transit Less: Outstanding checks Balance per books, 3/31/07 Data per bank for the month of April 2007 follow: Deposits Disbursements $37,200 10,300 47,500 12,600 $34,900 $46,700 49,700

All reconciling items at March 31, 2007 cleared the bank in April. Outstanding checks at April 30, 2007 totaled $6,000. There were no deposits in transit at April 30, 2007. What is the cash balance per books at April 30, 2007? a. $28,200 b. $31,900 c. $34,200 d. $38,500 6. How should the following costs affect a retailer's inventory valuation? a. b. c. d. 7. Freight-in Increase Increase No effect No effect Interest on Inventory Loan No effect Increase Increase No effect

The following information applied to Grey, Inc. for 2007: Merchandise purchased for resale $300,000 Freight-in 8,000 Freight-out 5,000 Purchase returns 2,000 Grey's 2007 inventoriable cost was a. $300,000. b. $303,000. c. $306,000. d. $311,000.

= $300,000 + $8,000 - $2,000

8.

Cole Corp.'s accounts payable at December 31, 2007, totaled $800,000 before any necessary year-end adjustments relating to the following transactions: On December 27, 2007, Cole wrote and recorded checks to creditors totaling $350,000 causing an overdraft of $100,000 in Cole 's bank account at December 31, 2007. The checks were mailed out on January 10, 2008. On December 28, 2007, Cole purchased and received goods for $150,000, terms 2/10, n/30. Cole records purchases and accounts payable at net amounts. The invoice was recorded and paid January 3, 2008. Goods shipped f.o.b. destination on December 20, 2007 from a vendor to Cole were received January 2, 2008. The invoice cost was $65,000.

At December 31, 2007, what amount should Cole report as total accounts payable? a. $1,362,000. b. $1,297,000. c. $1,050,000. d. $950,000. $800,000 + $350,000 + $147,000 = $1,297,000. 9. Tysen Retailers purchased merchandise with a list price of $50,000, subject to trade discounts of 20% and 10%, with no cash discounts allowable. Tysen should record the cost of this merchandise as a. $35,000. b. $36,000. c. $39,000. d. $50,000. = $50,000*0.9*0.8 10. Dark Co. recorded the following data pertaining to raw material X during January 2007: Units Date Received Cost Issued On Hand 1/1/07 Inventory $8.00 3,200 1/11/07 Issue 1,600 1,600 1/22/07 Purchase 4,000 $9.40 5,600 The moving-average unit cost of X inventory at January 31, 2007 is a. $8.70. b. $8.85. c. $9.00. d. $9.40.

[(1,600 $8.00) + (4,000 $9.40)] 5,600 = $9.00 11. During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods? FIFO LIFO a. Yes No b. Yes Yes c. No Yes d. No No 12. Noll Co. had 450 units of product A on hand at January 1, 2007, costing $42 each. Purchases of product A during January were as follows: Date Units Unit Cost Jan. 10 600 $44 18 750 46 28 300 48 A physical count on January 31, 2007 shows 600 units of product A on hand. The cost of the inventory at January 31, 2007 under the LIFO method is a. $28,200. b. $26,700. c. $25,500. d. $24,600. 13. Carr Co. adopted the dollar-value LIFO inventory method on December 31, 2007. Carr's entire inventory constitutes a single pool. On December 31, 2007, the inventory was $320,000 under the dollar-value LIFO method. Inventory data for 2008 are as follows: 12/31/08 inventory at year-end prices Relevant price index at year end (base year 2007) $440,000 110

Using dollar value LIFO, Carr's inventory at December 31, 2008 is a. $352,000. b. $408,000. c. $400,000. d. $440,000. 14. Teel Distribution Co. has determined its December 31, 2007 inventory on a FIFO basis at $250,000. Information pertaining to that inventory follows: Estimated selling price Estimated cost of disposal Normal profit margin Current replacement cost $255,000 10,000 30,000 225,000

Teel records losses that result from applying the lower-of-cost-or-market rule. At December 31, 2007, the loss that Teel should recognize is a. $0. b. $5,000. c. $20,000. d. $25,000. 15. Under the lower-of-cost-or-market method, the replacement cost of an inventory item would be used as the designated market value a. when it is below the net realizable value less the normal profit margin. b. when it is below the net realizable value and above the net realizable value less the normal profit margin. c. when it is above the net realizable value. d. regardless of net realizable value.

16.

The original cost of an inventory item is above the replacement cost and the net realizable value. The replacement cost is below the net realizable value less the normal profit margin. As a result, under the lower-of-cost-or-market method, the inventory item should be reported at the a. net realizable value. b. net realizable value less the normal profit margin. c. replacement cost. d. original cost. Gore Company's accounting records indicated the following information: Inventory, 1/1/07 Purchases during 2007 Sales during 2007 $ 600,000 3,000,000 3,800,000

17.

A physical inventory taken on December 31, 2007, resulted in an ending inventory of $700,000. Gore's gross profit on sales has remained constant at 25% in recent years. Gore suspects some inventory may have been taken by a new employee. At December 31, 2007, what is the estimated cost of missing inventory? a. $50,000. b. $150,000. c. $200,000. d. $250,000. $3,850,000*75% = $2,850,000 (COGS) $600,000 + $3,000,000 - $2,850,000 - $700,000 = $50,000 18. Eaton Co. uses the retail inventory method to estimate its inventory for interim statement purposes. Data relating to the computation of the inventory at July 31, 2007, are as follows:

Inventory, 2/1/07 Purchases Markups, net Sales Estimated normal shoplifting losses Markdowns, net

Cost $ 200,000 1,000,000

Retail $ 250,000 1,575,000 175,000 1,750,000 20,000 110,000

Under the lower-of-cost-or-market method, Eaton's estimated inventory at July 31, 2007 is a. $72,000. b. $84,000. c. $96,000. d. $120,000. ($200,000 + $1,000,000) ($250,000 + $1,575,000 + $175,000) = 0.6 ($250,000 + $1,575,000 + $175,000 - $20,000 - $110,000 - $1,750,000) 0.6 = $72,000 19. On December 31, 2006, Lilly Co. adopted the dollar-value LIFO retail inventory method. Inventory data for 2007 are as follows: LIFO Cost Retail Inventory, 12/31/06 $300,000 $420,000 Inventory, 12/31/07 ? 550,000 Increase in price level for 2007 10% Cost to retail ratio for 2007 70% Under the LIFO retail method, Lilly's inventory at December 31, 2007, should be a. $361,600. b. $385,000. c. $391,000. d $400,100. $550,000 1.1 = $500,000 $300,000 + (($500,000 - $420,000) 1.1 0.7) = $361,600 20. On December 1, 2007, Logan Co. purchased a tract of land as a factory site for $800,000. The old building on the property was razed, and salvaged materials resulting from demolition were sold. Additional costs incurred and salvage proceeds realized during December 2007 were as follows: Cost to raze old building Legal fees for purchase contract and to record ownership Title guarantee insurance Proceeds from sale of salvaged materials $70,000 10,000 16,000 8,000

In Logan 's December 31, 2007 balance sheet, what amount should be reported as land?

a. b. c. d.

$826,000. $862,000. $888,000. $896,000.

$800,000 + 70,000 + 10,000 + 16,000 -8,000 = $888,000 21. Land was purchased to be used as the site for the construction of a plant. A building on the property was sold and removed by the buyer so that construction on the plant could begin. The proceeds from the sale of the building should be a. classified as other income. b. deducted from the cost of the land. c. netted against the costs to clear the land and expensed as incurred. d. netted against the costs to clear the land and amortized over the life of the plant.

22.

Gray Football Co. had a player contract with Vance that is recorded in its books at $3,600,000 on July 1, 2007. Day Football Co. had a player contract with Simms that is recorded in its books at $4,500,000 on July 1, 2007. On this date, Gray traded Vance to Day for Simms and paid a cash difference of $450,000. The fair value of the Simms contract was $5,400,000 on the exchange date. The exchange had no commercial substance. After the exchange, the Simms contract should be recorded in Gray's books at a. $4,050,000. b. $4,500,000. c. $4,950,000. d. $5,400,000. Petty County owned an idle parcel of real estate consisting of land and a factory building. Petty gave title to this realty to Larson Co. as an incentive for Larson to establish manufacturing operations in the County. Larson paid nothing for this realty, which had a fair market value of $250,000 at the date of the grant. Larson should record this nonmonetary transaction as a a. memo entry only. b. credit to Contribution Revenue for $250,000. c. credit to extraordinary income for $250,000. d. credit to Donated Capital for $250,000.

23.

24.

On September 10, 2007, Flint Co. incurred the following costs for one of its printing presses: Purchase of attachment $55,000 Installation of attachment 5,000 Replacement parts for renovation of press 18,000 Labor and overhead in connection with renovation of press 7,000 Neither the attachment nor the renovation increased the estimated useful life of the press. However, the renovation resulted in significantly increased productivity. What amount of the costs should be capitalized? a. $0. b. $67,000. c. $78,000. d. $85,000.

25.

On January 2, 2007, Renn Corp. replaced its boiler with a more efficient one. The following information was available on that date: Purchase price of new boiler Carrying amount of old boiler Fair value of old boiler Installation cost of new boiler $150,000 10,000 4,000 20,000

The old boiler was sold for $4,000. What amount should Renn capitalize as the cost of the new boiler? a. $170,000. b. $166,000. c. $160,000. d. $150,000. 26. Gant Co. purchased a machine on July 1, 2007, for $400,000. The machine has an estimated useful life of five years and a salvage value of $80,000. The machine is being depreciated from the date of acquisition by the 150% declining-balance method. For the year ended December 31, 2007, Gant should record depreciation expense on this machine of a. $120,000. b. $80,000. c. $60,000. d. $48,000. A machine with a five-year estimated useful life and an estimated 10% salvage value was acquired on January 1, 2005. The depreciation expense for 2007 using the double-declining balance method would be original cost multiplied by a. 90% 40% 40%. b. 60% 60% 40%. c. 90% 60% 40%.

27.

d. 40% 40%.

28.

On April 1, 2005, Reiley Co. purchased new machinery for $240,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method. The accumulated depreciation on this machinery at March 31, 2007, should be a. $160,000. b. $144,000. c. $96,000. d. $80,000. A depreciable asset has an estimated 15% salvage value. At the end of its estimated useful life, the accumulated depreciation would equal the original cost of the asset under which of the following depreciation methods? Straight-line Productive Output a. Yes No b. Yes Yes c. No Yes d. No No A plant asset with a five-year estimated useful life and no residual value is sold at the end of the second year of its useful life. How would using the sum-of-theyears'-digits method of depreciation instead of the double-declining balance method of depreciation affect a gain or loss on the sale of the plant asset? Gain Loss a. Decrease Decrease b. Decrease Increase c. Increase Decrease d. Increase Increase Nolan Company acquired a tract of land containing an extractable natural resource. Nolan is required by the purchase contract to restore the land to a condition suitable for recreational use after it has extracted the natural resource. Geological surveys estimate that the recoverable reserves will be 5,000,000 tons, and that the land will have a value of $1,000,000 after restoration. Relevant cost information follows: Land Estimated restoration costs $7,000,000 1,500,000

29.

30.

31.

If Nolan maintains no inventories of extracted material, what should be the charge to depletion expense per ton of extracted material? a. $1.70 b. $1.50 c. $1.40 d. $1.20

32.

In January 2007, Jenn Mining Corporation purchased a mineral mine for $4,200,000 with removable ore estimated by geological surveys at 2,500,000 tons. The property has an estimated value of $400,000 after the ore has been extracted. Jenn incurred $1,150,000 of development costs preparing the property for the extraction of ore. During 2007, 340,000 tons were removed and 300,000 tons were sold. For the year ended December 31, 2007, Jenn should include what amount of depletion in its cost of goods sold? a. $516,800 b. $456,000 c. $594,000 d. $673,200 On June 30, 2007, Cey, Inc. exchanged 2,000 shares of Seely Corp. $30 par value common stock for a patent owned by Gore Co. The Seely stock was acquired in 2007 at a cost of $55,000. At the exchange date, Seely common stock had a fair value of $45 per share, and the patent had a net carrying value of $110,000 on Gore's books. Cey should record the patent at a. $55,000. b. $60,000. c. $90,000. d. $110,000. January 2, 2004, Koll, Inc. purchased a patent for a new consumer product for $180,000. At the time of purchase, the patent was valid for 15 years; however, the patents useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2007, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2007, assuming amortization is recorded at the end of each year? a. $18,000 b. $108,000 c. $126,000 d. $144,000

33.

34.

35.

On January 1, 2003, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years. In January 2007, Unruh paid $120,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2007, should be a. $0. b. $50,000. c. $57,500. d. $60,000. Which of the following legal fees should be capitalized? Legal fees to obtain a copyright a. No b. No c. Yes d. Yes Legal fees to successfully defend a trademark No Yes Yes No

36.

37.

Which of the following costs of goodwill should be amortized over their estimated useful lives? Costs of goodwill from a business combination Costs of developing accounted for as a purchase goodwill internally a. No No b. No Yes c. Yes Yes d. Yes No During 2007, Leon Co. incurred the following costs: Testing in search for process alternatives $ 350,000 Costs of marketing research for new product 250,000 Modification of the formulation of a process 510,000 Research and development services performed by Beck Corp. for Leon 325,000 In Leon's 2007 income statement, research and development expense should be a. $510,000. b. $835,000. c. $1,185,000. d. $1,435,000.

38.

39.

Which of the following is generally associated with payables classified as accounts payable?

Periodic Payment of Interest a. No b. No c. Yes d. Yes 40.

Secured by Collateral No Yes No Yes

On January 1, 2007, Didde Co. leased a building to Ellis Corp. for a ten-year term at an annual rental of $80,000. At inception of the lease, Didde received $320,000 covering the first two years' rent of $160,000 and a security deposit of $160,000. This deposit will not be returned to Ellis upon expiration of the lease but will be applied to payment of rent for the last two years of the lease. What portion of the $320,000 should be shown as a current and long-term liability, respectively, in Didde's December 31, 2007 balance sheet? Current Liability Long-term Liability a. $0 $320,000 b. $80,000 $160,000 c. $160,000 $160,000 d. $160,000 $80,000

41.

Included in Sauder Corp.'s liability account balances at December 31, 2006, were the following: 7% note payable issued October 1, 2006, maturing September 30, 2007 $250,000 8% note payable issued April 1, 2006, payable in six equal annual installments of $150,000 beginning April 1, 2007 600,000 Sauder 's December 31, 2006 financial statements were issued on March 31, 2007. On January 15, 2007, the entire $600,000 balance of the 8% note was refinanced by issuance of a long-term obligation payable in a lump sum. In addition, on March 10, 2007, Sauder consummated a noncancelable agreement with the lender to refinance the 7%, $250,000 note on a long-term basis, on readily determinable terms that have not yet been implemented. On the December 31, 2006 balance sheet, the amount of the notes payable that Sauder should classify as short-term obligations is a. $175,000. b. $125,000. c. $50,000. d. $0.

42.

Dexter 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 contract revenues. This account had a balance of $480,000 at December 31, 2006 before year-end adjustment. Service contract costs are charged as incurred to the service contract expense account,

which had a balance of $120,000 at December 31, 2006. Outstanding service contracts at December 31, 2006 expire as follows: During 2007 During 2008 During 2009 $100,000 $160,000 $70,000 What amount should be reported as unearned service contract revenues in Dexter's December 31, 2006 balance sheet? a. $360,000. b. $330,000. c. $240,000. d. $220,000. 43. Lett Co. has a probable loss that can only be reasonably estimated within a range of outcomes. No single amount within the range is a better estimate than any other amount. The loss accrual should be a. zero. b. the maximum of the range. c. the mean of the range. d. the minimum of the range. On July 1, 2007, Pryce Co. issued 1,000 of its 10%, $1,000 bonds at 99 plus accrued interest. The bonds are dated April 1, 2007 and mature on April 1, 2017. Interest is payable semiannually on April 1 and October 1. What amount did Pryce receive from the bond issuance? a. $1,015,000 b. $1,000,000 c. $990,000 d. $965,000

44.

45.

On January 1, 2007, Gomez Co. issued its 10% bonds in the face amount of $3,000,000, which mature on January 1, 2017. The bonds were issued for $3,405,000 to yield 8%, resulting in bond premium of $405,000. Gomez uses the effective-interest method of amortizing bond premium. Interest is payable annually on December 31. At December 31, 2007, Gomez's adjusted unamortized bond premium should be a. $405,000. b. $377,400. c. $364,500. d. $304,500. On January 1, 2007, Nott Co. sold $1,000,000 of its 10% bonds for $885,296 to yield 12%. Interest is payable semiannually on January 1 and July 1. What amount should Nott report as interest expense for the six months ended June 30, 2007? a. $44,266

46.

b. $50,000 c. $53,118 d. $60,000 47. On its December 31, 2006 balance sheet, Lane Corp. reported bonds payable of $6,000,000 and related unamortized bond issue costs of $320,000. The bonds had been issued at par. On January 2, 2007, Lane retired $3,000,000 of the outstanding bonds at par plus a call premium of $70,000. What amount should Lane report in its 2007 income statement as loss on extinguishment of debt (ignore taxes)? a. $0 b. $70,000 c. $160,000 d. $230,000 Starr Co. took advantage of market conditions to refund debt. This was the fourth refunding operation carried out by Starr within the last three years. The excess of the carrying amount of the old debt over the amount paid to extinguish it should be reported as a a. gain, net of income taxes. b. loss, net of income taxes. c. part of continuing operations. d. deferred credit to be amortized over the life of the new debt. Lease A does not contain a bargain purchase option, but the lease term is equal to 90 percent of the estimated economic life of the leased property. Lease B does not transfer ownership of the property to the lessee by the end of the lease term, but the lease term is equal to 75 percent of the estimated economic life of the leased property. How should the lessee classify these leases? Lease A Lease B a. Operating lease Capital lease b. Operating lease Operating lease c. Capital lease Capital lease d. Capital lease Operating lease

48.

49.

50.

On December 31, 2008, Mendez, Inc. leased machinery with a fair value of $840,000 from Cey Rentals Co. The agreement is a six-year noncancelable lease requiring annual payments of $160,000 beginning December 31, 2008. The lease is appropriately accounted for by Mendez as a capital lease. Mendez's incremental borrowing rate is 11%. Mendez knows the interest rate implicit in the lease payments is 10%. The present value of an annuity due of 1 for 6 years at 10% is 4.7908.

The present value of an annuity due of 1 for 6 years at 11% is 4.6959. In its December 31, 2008 balance sheet, Mendez should report a lease liability of a. $606,528. b. $680,000. c. $751,344. d. $766,528. 51. In a lease that is recorded as a sales-type lease by the lessor, interest revenue a. should be recognized in full as revenue at the lease's inception. b. should be recognized over the period of the lease using the straight-line method. c. should be recognized over the period of the lease using the effective interest method. d. does not arise.