FA -II Testata

1. When a closely held corporation issues preferred stock for land, the land should be recorded at
the
a. Total par value of the stock issued
b. Total book value of the stock issued
c. Appraised value of the land
d. Total liquidating value of the stock issued

2. A principal objection to the straight-line method of depreciation is that it

a. Provides for the declining productivity of an aging asset
b. Ignores variations in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment base
d. Gives smaller periodic write-offs than decreasing charge methods

3. Property, plant, and equipment are conventionally presented n the balance sheet at
a. Replacement cost less accumulated depreciation
b. Historical cost less salvage value
c. Original cost adjusted for general price level changes
d. Acquisition cost less depreciated portion thereof

4. As generally used in accounting, depreciation

a. Is a process of asset valuation for balance sheet purposes
b. Applies only to long-lived intangible assets
c. Is used to indicate a decline in market value of a long-lived asset
d. Is an accounting process that allocates long-lived asset cost to accounting periods

5. Lyle, Inc., purchased certain plant assets under a deferred payment contract on December 31,
2017. The agreement was to pay $20,000 at the time of purchase and $20,000 at the end of each
of the next five years. The plant assets should be valued at
a. The present value of a $20,000 ordinary annuity for five years
b. $120,000
c. $120,000 less imputed interest
d. $120,000 plus imputed interest

6. For income statement purposes, depreciation is a variable expense if the depreciation method
used for book purposes is
a. Units of production
b. Straight line
c. Sum-of-the-year's-digits
d. Declining balancea. Units of production

7. A method that excludes salvage value from the base for the depreciation calculation is
a. Straight line
b. Sum-of-the-year's digits

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c. Double-declining balance
d. Productive output

8. When a company purchases land with a building on it and immediately tears down the
building so that the land can be used for the construction of a plant, the cost incurred to tear
down the building should be
a. Expensed as incurred
b. Added to the cost of the plant
c. Added to the cost of the land
d. Amortized over the estimated time period between the tearing down of the building and the
completion of the plant

9. A machine with a four-year estimated useful life and an estimated 15 percent salvage value
was acquired on January 1, 2016. On December 31, 2018, the accumulated depreciation using
the sum-of-year's digits method would be
a. (Original cost less salvage value) multiplied by 9/10
b. Original cost multiplied by 9/10
c. Original cost multiplied by 9/10 less total salvage value
d. (Original cost less salvage value) multiplied by 1/10

10. Assets that qualify for interest cost capitalization include

a. Assets under construction for a company's own use
b. Assets that are ready for their intended use in the earnings of the company
c. Assets that are not currently being used because of excess capacity
d. All of these assets qualify for interest cost capitalization

11. When computing the amount of interest cost to be capitalized, the concept of "avoidable
interest" refers to
a. A cost of capital charge for stockholders' equity
b. That portion of weighted-average accumulated expenditures on which no interest cost was
incurred
c. The total interest cost actually incurred
d. That portion of total interest cost which would not have been incurred if expenditures for asset
construction had not been made

12. When boot is involved in an exchange having commercial substance

a. Only losses should be recognized
b. Only gains should be recognized
c. Gains or losses are recognized in their entirely
d. A gain or loss is computed by comparing the fair value of the asset received with the fair value
of the asset given up

13. The cost of a nonmonetary asset acquired in exchange for another nonmonetary asset when
the exchange has commercial substance is usually recorded at
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FA -II Testata

a. The fair value of the asset given up, and a gain but not a loss may be recognized
b. The fair value of the asset given up, and a gain or loss is recognized
c. The fair value of the asset received if it is equally reliable as the fair value of the asset given
up
d. Either the fair value of the asset given up or the asset received, whichever one results in the
largest gain (smallest loss) to the company

14. A plant site donated by a city to a company that plans to open a new factory should be
recorded on the company's books at
a. The value assigned to it by the company's directors
b. One dollar (since the site cost nothing but should be included in the balance sheet)
c. The cost of taking title to it
d. Its fair value

15. An impairment of property, plant, or equipment has occurred if

a. The estimated salvage value is less than the actual proceeds received on disposal
b. The revised estimated useful life is less than the original estimated useful life
c. The expected future cash outflows exceed the asset's carrying value
d. The sum of the expected future net cash flows is less than the asset's carrying value

16. When should a long-lived asset be tested for recoverability?

a. When external financial statements are being prepared
b. When the asset's fair value has decreased, and the decrease is judged to be permanent
c. When events or changes in circumstances indicate that its carrying amount may not be
recoverable
d. When the asset's carrying amount is less than its fair value

17. The asset turnover ratio is computed by dividing

a. Net sales by average total assets
b. Net sales by ending total assets
c. Net income by ending total assets
d. Net income by average total assets

18. The rate of return on total assets is computed by dividing

a. Net sales by ending total assets
b. Net income by ending total assets
c. Net income by average total assets
d. Net sales by average total assets

19. The theoretical justification for reporting depreciation expense is

a. Depreciation expense represents a decrease in the value of the asset that has occurred during
the accounting period.
b. Depreciation expense represents the impairment of the asset that has occurred during the
accounting period.
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FA -II Testata

c. Depreciation expense represents the unrealized loss that has been incurred by using the asset
during the accounting period.
d. Depreciation expense represents the allocation of the historical cost of the asset that has been
applied to the accounting period

20. Which of the following principles best describes the conceptual rationale for the methods of
matching depreciation expense with revenues?
a. Systematic and rational allocation
b. Immediate recognition
c. The process of charging the decline in value of an economic resource to income in the period
in which the benefit occurred.
d. The process of allocating the cost of tangible assets to expense in a systematic and rational
manner to those periods expected to benefit from the use of the asset.

21. Which of the following is not one of the basic questions that must be answered before the
amount of depreciation charge can be computed?
a. What is the asset's useful life?
b. What method of cost apportionment is best for this asset?
c. What product or service is the asset related to?
d. What is the depreciation base to use for the asset?

22. A principal objection to the straight-line method of depreciation is that it

a. Provides for the declining productivity of an aging asset
b. Ignores variations in the rate of asset use
c. Tends to result in a constant rate of return on a diminishing investment base
d. Gives smaller periodic write-offs than decreasing charge methods

23. The most common method of recording depletion for accounting purposes is the
a. Straight-line method
b. Units-of-production method
c. Percentage depletion method
d. Decreasing charge method

b. Units-of-production metho

chapte new

1-8. Which one of the following is not an objective of a system of internal controls?
a. Safeguard company assets
b. Overstate liabilities in order to be conservative
c. Enhance the accuracy and reliability of accounting records
d. Reduce the risks of errors

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9. Each of the following is a feature of internal control except

a. an extensive marketing plan.
b. bonding of employees.
c. separation of duties.
d. recording of all transactions.

10. Which of the following is not a limitation of internal control?

a. Cost of establishing control procedures should not exceed their benefit
b. The human element
c. Collusion
d. The size of the company

11. Companies that fail to maintain an adequate system of internal control

a. may be subject to charges of fraud.
b. will be automatically dissolved.
c. may be subject to fines and officer imprisonment.
d. may be forced to sell their assets.

12. The custodian of a company asset should

a. have access to the accounting records for that asset.
b. be someone outside the company.
c. not have access to the accounting records for that asset.
d. be an accountant.

13. From an internal control standpoint, the asset most susceptible to improper diversion and use
is
a. prepaid insurance.
b. cash.
c. buildings.
d. land.

14. A very small company would have the most difficulty in implementing which of the
following internal control activities?
a. Separation of duties
b. Limited access to assets
c. Periodic independent verification
d. Sound personnel procedures

15. In a small business, the lack of certain separations of duties can best be overcome by
a. bonding the employees.
b. getting the owner actively involved.
c. hiring only honest employees.
d. holding one person responsible for a given set of transactions.

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FA -II Testata

16. Mrs. Smith has worked for Arcco Inc. for 20 years without taking a vacation. An internal
control feature that would address this situation would be
a. other controls.
b. establishment of responsibility.
c. physical controls.
d. documentation procedures.

17. A bank statement

a. lets a depositor know the financial position of the bank as of a certain date.
b. is a credit reference letter written by the depositor's bank.
c. is a bill from the bank for services rendered.
d. shows the activities that increased or decreased the depositor's account balance.

18. Which one of the following would not cause a bank to debit a depositor's account?
a. Bank service charge
b. Collection of a note receivable
c. Wiring of funds to other locations
d. Checks marked NSF

19. A deposit made by a company will appear on the bank statement as a

a. debit.
b. credit.
c. debit memorandum.
d. credit memorandum.

20. Which of the following would be deducted from the balance per books on a bank
reconciliation?
a. Outstanding checks
b. Deposits in transit
c. Notes collected by the bank
d. Service charges

21. All of the following bank reconciliation items would result in an adjusting entry on the
company's books except
a. interest earned.
b. deposits in transit.
c. fee for collection of note by bank.
d. NSF check of customer.

22. Accounts receivable are valued and reported on the balance sheet
a. in the investment section.
b. at gross amounts less sales returns and allowances.
c. at cash realizable value.
d. only if they are not past due.
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FA -II Testata

23. Three accounting issues associated with accounts receivable are

a. depreciating, returns, and valuing.
b. depreciating, valuing, and collecting.
c. recognizing, valuing, and accelerating collections.
d. accrual, bad debts, and accelerating collections.

24. Larson Company on July 15 sells merchandise on account to Stuart Co. for $1,000, terms
2/10, n/30. On July 20 Stuart Co. returns merchandise worth $400 to Larson Company. On July
24 payment is received from Stuart Co. for the balance due. What is the amount of cash
received?
a. $600
b. $588
c. $580
d. $1,000

25.. The Allowance for Doubtful Accounts is necessary because

a. when recording uncollectible accounts expense, it is not possible to know which specific
accounts will not pay.
b. uncollectible accounts that are written off must be accumulated in a separate account.
c. a liability results when a credit sale is made.
d. management needs to accumulate all the credit losses over the years.

26.. The matching principle

a. requires that all credit losses be recorded when an individual customer cannot pay.
b. necessitates the recording of an estimated amount for bad debts.
c. results in the recording of a known amount for bad debt losses.
d. is not involved in the decision of when to expense a credit loss.

27. If the amount of uncollectible account expense is overstated at year end

a. net income will be overstated.
b. stockholders' equity will be overstated.
c. Allowance for Doubtful accounts will be understated.
d. net Accounts Receivable will be understated.

28. When the allowance method is used to account for uncollectible accounts, Bad Debts
Expense is debited when
a. a sale is made.
b. an account becomes bad and is written off.
c. management estimates the amount of uncollectibles.
d. a customer's account becomes past due.

29. An aging of a company's accounts receivable indicates that $4,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit balance, the adjustment to
record bad debts for the period will require a
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FA -II Testata

a. debit to Bad Debts Expense for $4,000.

b. debit to Allowance for Doubtful Accounts for $2,800.
c. debit to Bad Debts Expense for $2,800.
d. credit to Allowance for Doubtful Accounts for $4,000.

30. An aging of a company's accounts receivable indicates that $4,000 are estimated to be
uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to
record bad debts for the period will require a
a. debit to Bad Debts Expense for $4,000.
b. debit to Allowance for Doubtful Accounts for $5,200.
c. debit to Bad Debts Expense for $5,200.
d. credit to Allowance for Doubtful Accounts for $4,000.

31. To record estimated uncollectible accounts using the allowance method, the adjusting entry
would be a
a. debit to Accounts Receivable and a credit to Allowance for Doubtful Accounts.
b. debit to Bad Debts Expense and a credit to Allowance for Doubtful Accounts.
c. debit to Allowance for Doubtful Accounts and a credit to Accounts Receivable.
d. debit to Loss on Credit Sales and a credit to Accounts Receivable.

32. Manning Company uses the percentage of receivables method for recording bad debts
expense. The accounts receivable balance is $200,000 and credit sales are $1,000,000.
Management estimates that 5% of accounts receivable will be uncollectible. What adjusting entry
will Manning Company make if the Allowance for Doubtful Accounts has a credit balance of
$2,000 before adjustment?
a. Bad Debts Expense 10,000
Allowance for Doubtful Accounts 10,000
b. Bad Debts Expense 8,000
Allowance for Doubtful Accounts 8,000
c. Bad Debts Expense 8,000
Accounts Receivable 8,000
d. Bad Debts Expense 10,000
Accounts Receivable 10,000

33. Using the percentage of receivables method for recording bad debts expense, estimated
uncollectible accounts are $25,000. If the balance of the Allowance for Doubtful Accounts is
$8,000 debit before adjustment what is the amount of bad debt expense for that period?
a. $25,000
b. $8,000
c. $33,000
d. $17,000

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34. Laurs Company uses the percentage of receivables method for recording bad debts expense.
The Accounts Receivable balance is $200,000 and credit sales are $1,000,000. Management
estimates that 4% of accounts receivable will be uncollectible. What adjusting entry will
Manning Company make if the Allowance for Doubtful Accounts has a credit balance of $2,000
before adjustment?
a. Bad Debts Expense 10,000
Allowance for Doubtful Accounts 10,000
b. Bad Debts Expense 8,000
Allowance for Doubtful Accounts 8,000
c. Bad Debts Expense 6,000
Allowance for Doubtful Accounts 6,000
d. Bad Debts Expense 12,000
Accounts Receivable 12,000

35. Using the allowance method, the uncollectible accounts for the year is estimated to be
$28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 credit before
adjustment, what is the balance after adjustment?
a. $7,000
b. $21,000
c. $28,000
d. $35,000

36. Using the allowance method, the uncollectible accounts for the year is estimated to be
$28,000. If the balance for the Allowance for Doubtful Accounts is a $7,000 debit before
adjustment, what is the amount of bad debt expense for the period?
a. $7,000
b. $21,000
c. $28,000
d. $35,000

37. In 2007 the Fitzu Co. had net credit sales of $750,000. On January 1, 2007, Allowance for
Doubtful Accounts had a credit balance of $16,000. During 2007, $30,000 of uncollectible
accounts receivable were written off. Past experience indicates that the allowance should be 10%
of the balance in receivables (percentage of receivable basis). If the accounts receivable balance
at December 31 was $200,000 what is the required adjustment to the Allowance for Doubtful
Accounts at December 31, 2007?
a. $20,000.
b. $34,000.
c. $36,000.
d. $30,000.

38. A company has net credit sales of $900,000 for the year and it estimates that uncollectible
accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000

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prior to adjustment, its balance after adjustment will be a credit of

a. $18,000
b. $19,000
c. $17,980
d. $17,000

39. An analysis and aging of the accounts receivable of Yates Company at December 31 reveal
these data:
Accounts receivable $ 1,600,000
Allowance for doubtful
accounts per books before
adjustment (credit) 100,000
Amounts expected to become
uncollectible 130,000
What is the cash realizable value of the accounts receivable at December 31 after adjustment?
a. $1,370,000
b. $1,500,000
c. $1,600,000
d. $1,470,000

Use the following information to answer questions 40 & 41.

12/31/06
Accounts receivable $525,000
Allowance (45,000)
Cash realizable value 480,000
During 2007 sales on account were $145,000 and collections on account were $86,000. Also,
during 2007 the company wrote off $8,000 in uncollectible accounts. An analysis of outstanding
receivable accounts at year end indicated that bad debts should be estimated at $54,000.
40. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was
a. $50,000 increase
b. $59,000 increase
c. $42,000 increase
d. $51,000 increase

41. Bad debt expense for 2007 is:

a. $17,000
b. $ 9,000
c. $54,000
d. $ 1,000

Use the following information to answer questions 42 and 43.

12/31/06
Accounts receivable $1,050,000

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Allowance (90,000)
Cash realizable value $960,000
During 2007 sales on account were $290,000 and collections on account were $172,000. Also
during 2007 the company wrote off $16,000 in uncollectible accounts. An analysis of
outstanding receivable accounts at year end indicated that bad debts should be estimated at
$108,000.
42. The change in the cash realizable value from the balance at 12/31/06 to 12/31/07 was a
a. $100,000 increase
b. $118,000 increase
c. $ 84,000 increase
d. $102,000 increase

43. Bad debts expense for 2007 is

a. $ 34,000
b. $ 18,000
c. $108,000
d. $ 2,000

44. Papa Bear Corporation's unadjusted trial balance includes the following balances (assume
normal balances)
Accounts Receivable $1,119,000
Allowances for Doubtful Accounts $ 21,300
Bad debts are estimated to be 6% of outstanding receivables. What amount of bad debts expense
will the company record?
a. $67,140
b. $45,840
c. $44,562
d. $68,418

45. Under the allowance method of accounting for bad debts, why must uncollectible accounts
receivable be estimated at the end of the accounting period?
a. To allow the collection department to schedule work for the next accounting period.
b. To determine the gross realizable value of accounts receivable.
c. The IRS rules require the company to make the estimate.
d. To match bad debt expense to the period in which the revenues were earned.

46. When calculating interest on a promissory note with the maturity date stated in terms of days,
the
a. maker pays more interest if 365 days are used instead of 360.
b. maker pays the same interest regardless if 365 or 360 days are used.
c. payee receives more interest if 360 days are used instead of 365.
d. payee receives less interest if 360 days are used instead of 365.

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47. The interest on a $4,000, 10%, 1-year note receivable is

a. $4,000.
b. $400.
c. $4,400.
d. $4,040.

48. Sloan Company receives a $3,000, 3-month, 6% promissory note from Day Company in
settlement of an open accounts receivable. What entry will Sloan Company make upon receiving
the note?
a. Notes Receivable 3,045
Accounts Receivable—Day Company 3,045
b. Notes Receivable 3,045
Accounts Receivable—Day Company 3,000
Interest Revenue 45
c. Notes Receivable 3,000
Interest Receivable 45
Accounts Receivable—Day Company 3,000
Interest Revenue 45
d. Notes Receivable 3,000
Accounts Receivable—Day Company 3,000

49. Garber Company lends Newell Company $20,000 on April 1, accepting a four-month, 6%
interest note. Garber Company prepares financial statements on April 30. What adjusting entry
should be made before the financial statements can be prepared?
a. Note Receivable 20,000
Cash 20,000
b. Interest Receivable 100
Interest Revenue 100
c. Cash 100
Interest Revenue 100
d. Interest Receivable 300
Interest Revenue 300

50. A company purchased land for $72,000 cash. Real estate brokers' commission was $5,000
and $7,000 was spent for demolishing an old building on the land before construction of a new
building could start. Proceeds from salvage of the demolished building was $1,200. Under the
cost principle, the cost of land would be recorded at
a. $82,800.
b. $72,000.
c. $77,800.
d. $84,000.

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51. Elway Company purchases land for $85,000 cash. Elway assumes $2,500 in property taxes
due on the land. The title and attorney fees totaled $1,000. Elway has the land graded for $2,200.
They paid $10,000 for paving of a parking lot. What amount does Elway record as the cost for
the land?
a. $88,200
b. $100,700
c. $90,700
d. $85,000

52. Stories Company purchased equipment and these costs were incurred:
Cash price $22,500
Sales taxes 1,800
Insurance during transit 320
Installation and testing 430
Total costs $25,050
Stories will record the acquisition cost of the equipment as
a. $22,500.
b. $24,300.
c. $24,620.
d. $25,050.

53. Depreciation is a process of

a. asset devaluation.
b. cost accumulation.
c. cost allocation.
d. asset valuation.

54. In computing depreciation, salvage value is

a. the fair market value of a plant asset on the date of acquisition.
b. subtracted from accumulated depreciation to determine the plant asset's
depreciable cost.
c. an estimate of a plant asset's value at the end of its useful life.
d. ignored in all the depreciation methods.

56. Equipment was purchased for $60,000. Freight charges amounted to $2,800 and there was a
cost of $8,000 for building a foundation and installing the equipment. It is estimated that the
equipment will have a $12,000 salvage value at the end of its 5-year useful life. Depreciation
expense each year using the straight-line method will be
a. $14,160.
b. $11,760.
c. $9,840.
d. $9,600.

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57. Equipment with a cost of $192,000 has an estimated salvage value of $18,000 and an
estimated life of 4 years or 12,000 hours. It is to be depreciated by the straight-line method. What
is the amount of depreciation for the first full year, during which the equipment was used 3,300
hours?
a. $48,000
b. $52,500
c. $49,500
d. $43,500

58. A company purchased factory equipment on April 1, 2007, for $48,000. It is estimated that
the equipment will have a $6,000 salvage value at the end of its 10-year useful life. Using the
straight-line method of depreciation, the amount to be recorded as depreciation expense at
December 31, 2007, is
a. $4,800
b. $4,200
c. $3,150
d. $3,600

59. The declining-balance method of depreciation produces a(n)

a. decreasing depreciation expense each period.
b. increasing depreciation expense each period.
c. declining percentage rate each period.
d. constant amount of depreciation expense each period.

60. Which of the following methods will result in the highest depreciation in the first year?
a. Sum-of-year's-digits
b. Time valuation
c. Straight-line
d. Declining-balance

61. On November 1, 2006, Dark Company places a new asset into service. The cost of the asset
is $9,000 with an estimated 5-year life and $1,000 salvage value at the end of its useful life.
What is the depreciation expense for 2007 if Dark Company uses the straight-line method of
depreciation?
a. $400
b. $1,600
c. $266.67
d. $900

62. On January 1, a machine with a useful life of five years and a residual value of $5,000 was
purchased for $25,000. What is the depreciation expense for year 2 under straight-line
depreciation?
a. $5,000

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b. $15,000
c. $4,000
d. $12,000

63. A plant asset was purchased on January 1 for $40,000 with an estimated salvage value of
$8,000 at the end of its useful life. The current year's Depreciation Expense is $4,000 calculated
on the straight-line basis and the balance of the Accumulated Depreciation account at the end of
the year is $20,000. The remaining useful life of the plant asset is
a. 10 years.
b. 8 years.
c. 5 years.
d. 3 years.

Use the following information for questions 64-66.

Brinkman Corporation bought equipment on January 1, 2007 .The equipment cost $90,000 and
had an expected salvage value of $15,000. The life of the equipment was estimated to be 6 years.
64. The depreciable cost of the equipment is
a. $90,000
b. $75,000
c. $50,000
d. $12,500

65. The depreciation expense using the straight-line method of depreciation is

a. $17,500
b. $18,000
c. $12,500
d. none of the above
66. The book value of the equipment at the beginning of the third year would be
a. $90,000
b. $75,000
c. $65,000
d. $25,000

67. Bates Company purchased equipment on January 1, 2006, at a total invoice cost of $600,000.
The equipment has an estimated salvage value of $15,000 and an estimated useful life of 5 years.
What is the amount of accumulated depreciation at December 31, 2007, if the straight-line
method of depreciation is used?
a. $120,000
b. $240,000
c. $117,000
d. $234,000

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68. Machinery was purchased for $85,000. Freight charges amounted to $3,500 and there was a
cost of $10,000 for building a foundation and installing the machinery. It is estimated that the
machinery will have a $15,000 salvage value at the end of its 5-year useful life. Depreciation
expense each year using the straight-line method will be
a. $19,700
b. $16,700
c. $14,300
d. $14,000

69. A change in the estimated useful life of equipment requires

a. a retroactive change in the amount of periodic depreciation recognized in
previous years.
b. that no change be made in the periodic depreciation so that depreciation
amounts are comparable over the life of the asset.
c. that the amount of periodic depreciation be changed in the current year and
in future years.
d. that income for the current year be increased.

70. Greg's Copy Shop bought equipment for $60,000 on January 1, 2006. Greg estimated the
useful life to be 3 years with no salvage value, and the straight-line method of depreciation will
be used. On January 1, 2007, Greg decides that the business will use the equipment for a total of
5 years. What is the revised depreciation expense for 2007?
a. $20,000
b. $8,000
c. $10,000
d. $15,000

71. Joe's Quik Shop bought equipment for $25,000 on January 1, 2006. Joe estimated the useful
life to be 5 years with no salvage value, and the straight-line method of depreciation will be used.
On January 1, 2007, Joe decides that the business will use the equipment for a total of 6 years.
What is the revised depreciation expense for 2007?
a. $4,000
b. $2,000
c. $3,333
d. $5,000

72. Which of the following is not true of ordinary repairs?

a. They primarily benefit the current accounting period.
b. They can be referred to as revenue expenditures.
c. They maintain the expected productive life of the asset.
d. They increase the productive capacity of the asset.

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73. Additions and improvements

a. occur frequently during the ownership of a plant asset.
b. normally involve immaterial expenditures.
c. increase the company's investment in productive facilities.
d. typically only benefit the current accounting period.

74. A company sells a plant asset that originally cost $150,000 for $50,000 on December 31,
2007. The accumulated depreciation account had a balance of $60,000 after the current year's
depreciation of $15,000 had been recorded. The company should recognize a
a. $100,000 loss on disposal.
b. $40,000 gain on disposal.
c. $40,000 loss on disposal.
d. $25,000 loss on disposal.

75. A company sells a plant asset that originally cost $180,000 for $60,000 on December 31,
2007. The accumulated depreciation account had a balance of $90,000 after the current year's
depreciation of $15,000 had been recorded. The company should recognize a
a. $30,000 loss on disposal.
b. $30,000 gain on disposal.
c. $60,000 loss on disposal.
d. $60,000 gain on disposal.

76. Intangible assets are the rights and privileges that result from ownership of long-lived assets
that
a. must be generated internally.
b. are depreciated over their useful life.
c. have been exchanged at a gain.
d. do not have physical substance.

77. Goodwill can be recorded

a. when customers keep returning because they are satisfied with the company's products.
b. when the company acquires a good location for its business.
c. when the company has exceptional management.
d. only when there is an exchange transaction involving the purchase of an entire business.

78. Which of the following is not an intangible asset arising from a government grant?
a. Goodwill
b. Patent
c. Trademark
d. Trade name

79. Which of the following is not considered an intangible asset?

a. Goodwill
b. An oil well
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FA -II Testata

c. A franchise
d. A patent

80. Goodwill
a. is only recorded when generated internally.
b. can be subdivided and sold in parts.
c. can only be identified with the business as a whole.
d. can be defined as normal earnings less accumulated amortization.

81. A computer company has $3,000,000 in research and development costs. Before accounting
for these costs, the net income of the company is $2,400,000. What is the amount of net income
or loss after these research and development costs are accounted for?
a. $600,000 loss
b. $2,400,000 net income
c. $0
d. Cannot be determined from the information provided

82. Given the following account balances at year end, compute the total intangible assets on the
balance sheet of Anisha Enterprises.
Cash $1,500,000
Accounts Receivable 4,000,000
Trademarks 1,000,000
Goodwill 4,500,000
Research & Development Costs 2,000,000
a. $11,500,000
b. $7,500,000
c. $5,500,000
d. $9,500,000

83. A plant asset cost $96,000 and is estimated to have a $12,000 salvage value at the end of its
8-year useful life. The annual depreciation expense recorded for the third year using the double-
declining-balance method would be
a. $8,040.
b. $13,500.
c. $11,812.
d. $9,190.

84. On January 1, a machine with a useful life of five years and a residual value of $15,000 was
purchased for $45,000. What is the depreciation expense for year 2 under the double-declining-
balance method of depreciation?
a. $10,800
b. $18,000

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FA -II Testata

c. $14,400
d. $8,640

85. A current liability is a debt that can reasonably be expected to be paid

a. within one year, or the operating cycle, whichever is longer.
b. between 6 months and 18 months.
c. out of currently recognized revenues.
d. out of cash currently on hand.

86. Which of the following most likely would be classified as a current liability?
a. Dividends payable
b. Bonds payable in 5 years
c. Three-year notes payable
d. Mortgage payable as a single payment in 10 years

87. Very often, failure to record a liability means failure to record a(n)
a. revenue.
b. asset conversion.
c. footnote.
d. expense.

Use the following information for questions 88-90.

Moss County Bank agrees to lend the Allenson Brick Company $200,000 on January 1. Allenson
Brick Company signs a $200,000, 6%, 9-month note.
88. The entry made by Allenson Brick Company on January 1 to record the proceeds and
issuance of the note is
a. Interest Expense 9,000
Cash. 191,000
Notes Payable 200,000
b. Cash 200,000
Notes Payable 200,000
c. Cash 200,000
Interest Expense 9,000
Notes Payable 209,000
d. Cash 200,000
Interest Expense 9,000
Notes Payable 200,000
Interest Payable 9,000
89. What is the adjusting entry required if Allenson Brick Company prepares financial statements
on June 30?
a. Interest Expense 6,000
Interest Payable 6,000
b. Interest Expense 6,000

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FA -II Testata

Cash 6,000
c. Interest Payable 6,000
Cash 6,000
d. Interest Payable 6,000
Interest Expense 6,000
90. What entry will Allenson Brick Company make to pay off the note and interest at maturity
assuming that interest has been accrued to September 30?
a. Notes Payable 209,000
Cash 209,000
b. Notes Payable 200,000
Interest Payable 9,000
Cash 209,000
c. Interest Expense 9,000
Notes Payable 200,000
Cash 209,000
d. Interest Payable 6,000
Notes Payable 200,000
Interest Expense 3,000
Cash 209,000

Use the following information for questions 90-92.

West County Bank agrees to lend the Block Builders Company $100,000 on January 1. Block
Builders Company signs a $100,000, 6%, 6-month note.
90. The entry made by Block Builders Company on January 1 to record the proceeds and
issuance of the note is
a. Interest Expense 3,000
Cash. 97,000
Notes Payable 100,000
b. Cash 100,000
Notes Payable 100,000
c. Cash 100,000
Interest Expense 3,000
Notes Payable 103,000
d. Cash 100,000
Interest Expense 3,000
Notes Payable 100,000
Interest Payable 3,000
91. What is the adjusting entry required if Block Builders Company prepares financial statements
on March 30?
a. Interest Expense 3,000
Interest Payable 3,000
b. Interest Expense 3,000

20
FA -II Testata

Cash 3,000
c. Interest Expense 1,500
Interest Payable 1,500
d. Interest Payable 1,500
Interest Expense 1,500

92. What entry will Block Builders Company make to pay off the note and interest at maturity
assuming that interest has been accrued to June 30?
a. Notes Payable 103,000
Cash 103,000
b. Notes Payable 100,000
Interest Payable 3,000
Cash 103,000
c. Interest Expense 3,000
Notes Payable 100,000
Cash 103,000
d. Interest Payable 1,500
Notes Payable 100,000
Interest Expense 1,500
Cash 103,000

93.. Ramsey Company typically sells subscriptions on an annual basis, and publishes six times a
year. The magazine sells 60,000 subscriptions in January at $10 each. What entry is made in
January to record the sale of the subscriptions?
a. Subscriptions Receivable 600,000
Subscription Revenue 600,000
b. Cash 600,000
Unearned Subscription Revenue 600,000
c. Subscriptions Receivable 100,000
Unearned Subscription Revenue 100,000
d. Prepaid Subscriptions 600,000
Cash 600,000

94. A legal document that indicates the name of the issuer, the face value of the bond and such
other data is called
a. a bond certificate.
b. a bond debenture.
c. trading on the equity.
d. a convertible bond.

95. Bonds that may be exchanged for common stock at the option of the bondholders are called
a. options.
b. stock bonds.

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FA -II Testata

c. convertible bonds.
d. callable bonds.

96. Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option
of the issuer are called
a. callable bonds.
b. early retirement bonds.
c. options.
d. debentures.

97. Bonds that are issued against the general credit of the borrower are called
a. callable bonds.
b. debenture bonds.
c. secured bonds.
d. term bonds.

98. A bond with a face value of $100,000 and a quoted price of 102¼ has a selling price of
a. $120,225.
b. $102,025.
c. $100,225.
d. $102,250.

99. The present value of a bond is also known as its

a. face value.
b. market price.
c. future value.
d. deferred value.

100. If the market rate of interest is greater than the contractual rate of interest, bonds will sell
a. at a premium.
b. at face value.
c. at a discount.
d. only after the stated rate of interest is increased.

101. The interest expense recorded on an interest payment date is increased

a. by the amortization of premium on bonds payable.
b. by the amortization of discount on bonds payable.
c. only if the bonds were sold at face value.
d. only if the market rate of interest is less than the stated rate of interest on that date.

102. On January 1, 2007, $1,000,000, 10-year, 10% bonds, were issued for $970,000. Interest is
paid annually on January 1. If the issuing corporation uses the straight-line method to amortize
discount on bonds payable, the monthly amortization amount is
a. $9,700.

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FA -II Testata

b. $3,000.
c. $808.
d. $250.

103. A corporation issues $100,000, 10%, 5-year bonds on January 1, 2007, for $95,800. Interest
is paid annually on January 1. If the corporation uses the straight-line method of amortization of
bond discount, the amount of bond interest expense to be recognized in December 31, 2007's
adjusting entry is
a. $10,840.
b. $10,000.
c. $9,160.
d. $840.

104. A corporation issues $100,000, 8%, 5-year bonds on January 1, 2007, for $104,200. Interest
is paid annually on January 1. If the corporation uses the straight-line method of amortization of
bond discount, the amount of bond interest expense to be recognized in December 31, 2007's
adjusting entry is
a. $7,160.
b. $8,000.
c. $8,840.
d. $840.

105. When bonds are issued at a premium, the total interest cost of the bonds over the life of the
bonds is equal to the amount of
a. interest paid over the life of the bond.
b. interest paid over the life of the bond plus the amount of premium at sale
point.
c. interest paid over the life of the bond minus the amount of premium at sale
point.
d. premium at sale point.

Use the following information for questions 106-108

Porter Company received proceeds of $211,500 on 10-year, 8% bonds issued on January 1, 2006.
The bonds had a face value of $200,000, pay interest annually on December 31st. Porter uses the
straight-line method of amortization.
106. What is the amount of interest Porter must pay the bondholders in 2006?
a. $16,920
b. $16,000
c. $16,320
d. $1,692

107. What is the amount of interest expense Porter will show with relation to these bonds for the
year ended December 31, 2007?

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FA -II Testata

a. $16,000
b. $16,920
c. $14,850
d. $12,550
108. What is the carrying value of the bonds on January 1, 2008?
a. $200,000
b. $209,200
c. $190,800
d. $210,350

109. Turner Company issued $300,000 of 6%, 5-year bonds at 98. Assuming straight-line
amortization and annual interest payments, how much bond interest expense is recorded on the
next interest date?
a. $18,000
b. $9,000
c. $18,600
d. $19,200

110. When the straight-line method of amortization is used for a bond premium, the amount of
interest expense for an interest period is calculated by
a. adding the amount of premium amortized for that period to the amount of
cash paid for interest during the period.
b. subtracting the amount of premium amortized for that period from the amount
of cash paid for interest during the period.
c. multiplying the face value of the bonds by the stated interest rate.
d. multiplying the face value of the bonds by the market interest rate.

111. When the straight-line method of amortization is used for a bond discount, the amount of
interest expense for an interest period is calculated by
a. adding the amount of discount amortized for that period to the amount of
cash paid for interest during the period.
b. subtracting the amount of discount amortized for that period from the amount
of cash paid for interest during the period.
c. multiplying the face value of the bonds by the stated interest rate.
d. multiplying the face value of the bonds by the market interest rate.

112. On January 1, Jean Loptein Inc. issued $3,000,000, 9% bonds for $2,817,000. The market
rate of interest for these bonds is 10%. Interest is payable annually on December 31. Jean
Loptein uses the effective-interest method of amortizing bond discount. At the end of the first
year, Jean Loptein should report unamortized bond discount of
a. $164,700.
b. $171,300.

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FA -II Testata

c. $154,830.
d. $153,000.

113. On January 1, Cleopatra Corporation issued $2,000,000, 14%, 5-year bonds with interest
payable on December 31. The bonds sold for $2,144,192. The market rate of interest for these
bonds was 12%. On the first interest date, using the effective-interest method, the debit entry to
Bond Interest Expense is for
a. $240,000.
b. $251,162.
c. $257,304.
d. $280,000.

114. The amortization of a bond premium will result in reporting an amount of interest expense
for an interest period that
a. is less than the amount of cash to be paid for interest for the period.
b. exceeds the amount of cash to be paid for interest for the period.
c. equals the amount of cash to be paid for interest for the period.
d. has no predictable relationship with the amount of cash to be paid for interest
for the period.

115. The effective-interest method of amortization of bond premiums and discounts is considered
superior to the straight-line method because it results in a(n)
a. interest rate that is close to the market interest rate.
b. uniform rate of interest.
c. more variable interest rate.
d. interest rate that increases or decreases slightly over time.

116. Which of the following would not be true of a privately held corporation?
a. It is sometimes called a closely held corporation.
b. Its shares are regularly traded on the New York Stock Exchange.
c. It does not offer its shares for sale to the general public.
d. It is usually smaller than a publicly held company.

117. Which of the following statements reflects the transferability of ownership rights in a
corporation?
a. If a stockholder decides to transfer ownership, he must transfer all of his shares.
b. A stockholder may dispose of part or all of his shares.
c. A stockholder must obtain permission of the board of directors before selling shares.
d. A stockholder must obtain permission from at least three other stockholders before selling
shares.

118. Which one of the following is not an ownership right of a stockholder in a corporation?
a. To vote in the election of directors
b. To declare dividends on the common stock
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FA -II Testata

c. To share in assets upon liquidation

d. To share in corporate earnings

119. The par value of a stock

a. is legally significant.
b. reflects the most recent market price.
c. is selected by the SEC.
d. is indicative of the worth of the stock.

120. Par value

a. represents what a share of stock is worth.
b. represents the original selling price for a share of stock.
c. is established for a share of stock after it is issued.
d. is the value assigned per share in the corporate charter.

121. The term legal capital is a descriptive term for

a. stockholders' equity.
b. par value.
c. residual equity.
d. market value.

122. The amount of stock that may be issued according to the corporation's charter is referred to
as the
a. authorized stock.
b. issued stock.
c. unissued stock.
d. outstanding stock.

123. If Morgan Company issues 2,000 shares of $5 par value common stock for $140,000, the
account
a. Common Stock will be credited for $140,000.
b. Paid-in Capital in Excess of Par Value will be credited for $10,000.
c. Paid-in Capital in Excess of Par Value will be credited for $130,000.
d. Cash will be debited for $130,000.

124. If Kiner Company issues 1,000 shares of $5 par value common stock for $70,000, the
account
a. Common Stock will be credited for $5,000.
b. Paid-in Capital in Excess of Par Value will be credited for $5,000.
c. Paid-in Capital in Excess of Par Value will be credited for $70,000.
d. Cash will be debited for $65,000.

125. Paid-in Capital in Excess of Par Value

a. is credited when no-par stock does not have a stated value.

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FA -II Testata

b. is reported as part of paid-in capital on the balance sheet.

c. represents the amount of legal capital.
d. normally has a debit balance.

126. Specialty Packaging Corporation began business in 2007 by issuing 20,000 shares of $5 par
common stock for $8 per share and 5,000 shares of 6%, $10 par preferred stock for par. At year
end, the common stock had a market value of $10. On its December 31, 2007 balance sheet,
Specialty Packaging would report
a. Common Stock of $200,000.
b. Common Stock of $100,000.
c. Common Stock of $160,000.
d. Paid-in Capital of $150,000.

127. Foley Manufacturing Corporation purchased 3,000 shares of its own previously issued $10
par common stock for $69,000. As a result of this event,
a. Foley's Common Stock account decreased $30,000.
b. Foley's total stockholders' equity decreased $69,000.
c. Foley's Paid-in Capital in Excess of Par Value account decreased $39,000.
d. All of the above.

128. Treasury stock is

a. stock issued by the U.S. Treasury Department.
b. stock purchased by a corporation and held as an investment in its treasury.
c. corporate stock issued by the treasurer of a company.
d. a corporation's own stock, which has been reacquired and held for future use.

129. The acquisition of treasury stock by a corporation

a. increases its total assets and total stockholders' equity.
b. decreases its total assets and total stockholders' equity.
c. has no effect on total assets and total stockholders' equity.
d. requires that a gain or loss be recognized on the income statement.

130. Treasury stock should be reported in the financial statements of a corporation as a(n)
a. investment.
b. liability.
c. deduction from total paid-in capital.
d. deduction from total paid-in capital and retained earnings.

131. The number of shares of issued stock equals

a. unissued shares minus authorized shares.
b. outstanding shares plus treasury shares.
c. authorized shares minus treasury shares.
d. outstanding shares plus authorized shares

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FA -II Testata

13. Treasury shares plus outstanding shares equal

a. authorized stock.
b. issued stock.
c. unissued stock.
d. distributable stock.

133. Which of the following is not a right or preference associated with preferred stock?
a. The right to vote
b. First claim to dividends
c. Preference to corporate assets in case of liquidation
d. To receive dividends in arrears before common stockholders receive
dividends

134. Dividends in arrears on cumulative preferred stock

a. never have to be paid, even if common dividends are paid.
b. must be paid before common stockholders can receive a dividend.
c. should be recorded as a current liability until they are paid.
d. enable the preferred stockholders to share equally in corporate earnings with
the common stockholders.

135. The effect of a stock dividend is to

a. decrease total assets and stockholders' equity.
b. change the composition of stockholders' equity.
c. decrease total assets and total liabilities.
d. increase the book value per share of common stock.

136. Stock dividends and stock splits have the following effects on retained earnings:
Stock Splits Stock Dividends
a. Increase No change
b. No change Decrease
c. Decrease Decrease
d. No change No change

137. Which of the following statements regarding the date of a cash dividend declaration is not
accurate?
a. The dividend can be rescinded once it has been declared.
b. The corporation is committed to a legal, binding obligation.
c. The board of directors formally authorizes the cash dividend.
d. A liability account must be increased.

138. Sun Inc. has 5,000 shares of 6%, $100 par value, cumulative preferred stock and 50,000
shares of $1 par value common stock outstanding at December 31, 2007. What is the annual
dividend on the preferred stock?
a. $60 per share
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FA -II Testata

b. $30,000 in total
c. $3,000 in total
d. $0.60 per share

139. Which of the following statements is not true about a 2-for-1 split?
a. Par value per share is reduced to half of what it was before the split.
b. Total contributed capital increases.
c. The market price probably will decrease.
d. A stockholder with ten shares before the split owns twenty shares after the split.

140. What is the total stockholders' equity based on the following account balances?
Common Stock $400,000
Paid-In Capital in Excess of Par 50,000
Retained Earnings 175,000
Treasury Stock 25,000
a. $650,000
b. $625,000
c. $600,000
d. $450,000

Use the following information for questions 141-143.

Starr Corporation's December 31, 2007 Balance Sheet showed the following:
8% preferred stock, $20 par value, cumulative, 20,000 shares
authorized; 10,000 shares issued $ 200,000
Common stock, $10 par value, 2,000,000 shares authorized;
1,300,000 shares issued, 1,280,000 shares outstanding 13,000,000
Paid-in capital in excess of par value - preferred stock 40,000
Paid-in capital in excess of par value - common stock 18,000,000
Retained earnings 5,100,000
Treasury stock (10,000 shares) 420,000
141. Starr's total paid-in capital was
a. $31,240,000.
b. $31,660,000.
c. $30,820,000.
d. $18,040,000.

142. Starr declared and paid a $50,000 cash dividend on December 15, 2007. If the company's
dividends in arrears prior to that date were $12,000, Starr's common stockholders received
a. $38,000.
b. $18,000.
c. $22,000.
d. no dividend.

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FA -II Testata

143. Starr's total stockholders' equity was

a. $36,760,000.
b. $31,240,000.
c. $36,340,000.
d. $35,920,000.

144. In addition to the three basic financial statements, which of the following is also a required
financial statement?
a. The "Cash Budget"
b. Statement of Cash Flows
c. Statement of Cash Inflows and Outflows
d. The "Cash Reconciliation"

145. The order of presentation of activities on the statement of cash flows is

a. operating, investing, and financing.
b. operating, financing, and investing.
c. financing, operating, and investing.
d. financing, investing, and operating.

146. Financing activities involve

a. lending money.
b. acquiring investments.
c. issuing debt.
d. acquiring long-lived assets.

147. Investing activities include

a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.

148. Generally, the most important category on the statement of cash flows is cash flows from
a. operating activities.
b. investing activities.
c. financing activities.
d. significant noncash activities.

149. The payment of a cash dividend would be classified as a(n)

a. operating activity.
b. investing activity.
c. financing activity.
d. significant noncash activity.

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FA -II Testata

Use the following information for questions 150-152.

Joy Elle's Vegetable Market had the following transactions during 2007:
1. Issued $25,000 of par value common stock for cash.
2. Recorded and paid wages expense of $10,000.
3. Acquired land by issuing common stock of par value $50,000.
4. Declared and paid a cash dividend of $1,000.
5. Sold a long-term investment (cost $3,000) for cash of $3,000.
6. Recorded cash sales of $20,000.
7. Bought inventory for cash of $2,000.
8. Acquired an investment in IBM stock for cash of $6,000.
9. Converted bonds payable to common stock in the amount of $10,000.
10. Repaid a 6 year note payable in the amount of $11,000.
150. What is the net cash provided by operating activities?
a. $20,000.
b. $18,000.
c. $10,000.
d. $8,000.
151. What is the net cash provided by financing activities?
a. $13,000.
b. $25,000.
c. $14,000.
d. $9,000.

152. What is the net cash provided by investing activities?

a. $6,000.
b. $16,000
c. ($3,000).
d. $3,000.

153. A company had net income of $705,000. Depreciation expense is $78,000. During the year,
accounts receivable and inventory increased $45,000 and $120,000, respectively. Prepaid
expenses and accounts payable decreased $6,000 and $12,000, respectively. There was also a
loss on the sale of equipment of $9,000. How much cash was provided by operating activities?
a. $603,000.
b. $621,000.
c. $843,000.
d. $879,000.

154. The net income reported on the income statement for the current year was $220,000.
Depreciation was $50,000. Accounts receivable and inventories decreased by $10,000 and
$30,000, respectively. Prepaid expenses and accounts payable increased, respectively, by $1,000
and $8,000. How much cash was provided by operating activities?

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FA -II Testata

a. $281,000
b. $317,000
c. $301,000
d. $239,000

155. Comprehensive income would not include

a. dividends declared.
b. unrealized gains on available-for-sale securities.
c. discontinued operations.
d. extraordinary gains and losses.

156. In preparing a typical bank reconciliation, how would outstanding checks be handled?
a. Added to "balance per bank."
b. Subtracted from "balance per bank."
c. As an item that requires a general ledger adjustment.
d. They would be ignored.

157. During 2004, ABC Company had $750,000 of net credit sales. Accounts Receivable had a
December 31, 2004, balance of $250,000. No amounts have been added to the Allowance for
Doubtful Accounts during 2004. Before adjustment on December 31, 2004, the Allowance for
Doubtful Accounts had a credit balance of $2,000. ABC estimates that 3% of net credit sales will
become uncollectible. What will be the adjusted balance in Allowance for Doubtful Accounts at
December 31?
a. $22,500
b. $20,500
c. $24,500
d. $7,500

158. During 2004, Allied Associates had $750,000 of net credit sales. Accounts Receivable had a
December 31, 2004, balance of $250,000. No amounts have been added to the Allowance for
Doubtful Accounts during 2004. Before adjustment on December 31, 2004, the Allowance for
Doubtful Accounts had a credit balance of $2,000. Allied estimates that 6% of receivables will
become uncollectible. What will be the adjusted balance in Allowance for Doubtful Accounts at
December 31?
a. $43,000
b. $47,000
c. $45,000
d. $15,000

159. An exchange of similar productive assets was completed between Company A and
Company Z. Prior to the exchange, Company A owned Asset A; Company Z owned Asset Z.
Companies A and Z swapped Assets A and Z. Company A also paid $44,000 cash to Company Z
in the exchange.

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Additional information:
Asset A Asset Z
Book Value $60,000 $94,000
Market Value $55,000 $99,000
In recording the exchange, Company A will report:
a. a loss of $5,000
b. a portion of a $5,000 loss
c. a gain of $44,000
d. a loss of $99,000

160. ZETO Company acquired a new construction crane. The crane cost $1,000,000. In addition,
Zeto paid delivery cost of $50,000, setup and installation of $75,000, and truck repairs of $5,000
(it seems that during setup, a large beam was accidentally dropped on the hood of one of Zeto's
trucks).
ZETO should record the crane in its accounting records at:
a. $1,000,000
b. $1,050,000
c. $1,075,000
d. $1,125,000

161. On July 1, 2003, PLEE Corporation purchased factory equipment for $50,000. Salvage
value was estimated at $2,000. The equipment will be depreciated over 10 years using the
double-declining-balance method. Counting the year of acquisition as one-half year, PLEE
should record 2004 depreciation expense of:
a. $8,640
b. $9,000
c. $8,000
d. $10,000

162. Since 2001, TSAY Steel has replaced all its major manufacturing equipment and now has
the following equipment recorded in the appropriate accounts. TSAY uses a calendar year as its
fiscal year.
A forge purchased January 1, 2000, for $100,000. Ordinary and necessary installation costs were
$20,000, and the forge has an estimated 5-year life with a salvage value of $10,000.
A grinding machine costing $45,000 purchased January 1, 2002. The machine has an estimated
5-year life with a salvage value of $5,000.
A lathe purchased January 1, 2004 for $60,000. The lathe has an estimated 5-year life and a
salvage value of $7,000.
Using the straight-line depreciation method, TSAY's 2004 depreciation expense is:
a. $45,000
b. $40,334

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c. $40,600
d. $40,848

163. Crenshaw Corporation sells widgets. Each widget carries a multi-year warranty. Crenshaw
estimates the cost of warranty work to be 3% of current sales. 20X4 sales was $5 million and
$30,000 was spent on warranty work during 20X4. The balance in Estimated Warranty Liability
at 12-31-X3 was $70,000. What is the balance in Estimated Warranty Liability at 12-31-X4 and
the balance in Warranty Expense for 20X4, respectively?
a. $150,000; $ 30,000
b. $190,000; $ 30,000
c. $190,000; $150,000
d. $120,000; $150,000

164. Calhoun Crockery sold merchandise; the total proceeds collected, including a 7% sales tax,
amounted to $74,900. What is the amount that should be recorded as a current liability?
a. $0
b. $4,900
c. $5,243
d. $7,000

165. On January 1, 2004, Graves Inc sold a $1,000,000, 8%, 10 year semi-annual bond to the
public for $934,960 yielding 9%. Determine the interest expense Graves will report on June 30,
2004.
a. $40,000
b. $45,000
c. $37,398
d. $42,073

166. If a $100,000, 8%, 10 year semi-annual bond is sold to yield 9%. Assuming no transaction
costs the cash proceeds will be:
a. less then the face value
b. equal to face value
c. greater then the face value
d. more than $180,000

The following data should be used in solving Questions 167, 168, 169 and 170. Each of the
questions is mutually exclusive of the other questions.
Alpha Corporation has the following Shareholders' Equity section of the Balance Sheet at
1/1/2004:
Preferred Stock, 10%, $100 Par Value, 10,000 shares authorized, 1,000 issued, and outstanding $
100,000
Additional Paid In Capital - Preferred Stock 240,000
Common Stock, $10 Par Value, 100,000 shares authorized, 50,000 shares issued and outstanding

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500,000
Additional Paid In Capital - Common Stock 800,000
Total Paid In Capital $1,640,000
Retained Earnings 2,000,000
Total Shareholders' Equity $ 3,640,000
167. Assume Alpha sells 500 shares of Preferred Stock for $400 per share. What will be the
dollar amount of the increase to Preferred Stock, APIC- Preferred Stock, and Retained Earnings?
Increase Increase Additional Paid In Capital Increase Retained
Preferred Stock - Preferred Stock Earnings
a. 200,000 0 0
b. 150,000 50,000 0
c. 0 200,000 0
d. 50,000 150,000 0
168. Assume Alpha reacquires share of their own Common Stock to hold in the Treasury. They
pay $ 30.00 per share. With this purchase, the impact on Total Paid-in Capital and the total
Shareholders' Equity, respectively, will be:
a. increase/increase
b. decrease/decrease
c. increase/decrease
d. none/decrease
169. Assume Alpha's Board of Directors declares a cash dividend to all Shareholders. The
Preferred Shareholders will receive their assured amount and the Common Shareholders will
receive $ .10 per share. What will be the total dollar amount of the dividend?
a. $110,000
b. $105,000
c. $15,000
d. $55,000

170. Assume that Alpha has Net Income for the year of $360,000. Assuming that Alpha paid its
Preferred Stock Dividends based only on the information given, what is the dollar amount of
Earnings Per Share for Alpha for the year?
a. $ 6.86
b. $ 7.05
c. $ 7.00
d. $ 7.20

171. In the Statement of Cash Flows, an example of an investing activity would be:
a. Purchasing equipment for cash.
b. Buying inventory from a supplier on credit.
c. Selling stock to an investor for credit.
d. Repaying the principle on a bank loan.

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172. Which of the following is not a required section of the Statement of Cash Flows:
a. Cash flow from operating activities.
b. Cash flow from the company's major customers.
c. Cash flow from investing activities.
d. Cash flow from financing activities.

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