ACCT 284 Practice Exam 3

1). On average, 5% of credit sales has been uncollectible in the past. At the end of the year, the balance of accounts receivable is $100,000 and the allowance for doubtful accounts has a credit balance of $500 net credit sales during the year were $150,000. Using the percentage of credit sales method, the estimated bad debt expense would be:

A. / $5,000.
B. / $7,000.
C. / $7,500.
D. / indeterminable; the percent of credit sales method cannot be used, because, based on this information, the aging of accounts receivable method should be used.

2). The amount of uncollectible accounts at the end of the year is estimated to be $25,000 using the aging of accounts receivable method. The balance in the Allowance of Doubtful Accounts account is an $8,000 credit before adjustment. Assuming no accounts are written off during the period, what will be the amount of bad debts expense for the period?

A. / $8,000.
B. / $17,000.
C. / $25,000.
D. / $33,000.

3). Sure Company purchased a machine on January 1, 2004, at a cash cost of $12,000. The estimated useful life is 10 years, and the estimated residual value is $3,000. The company will use the double declining-balance method. Depreciation expense for the second year will be

A)$2,400.

B)$2,230.

C)$1,920.

D)$ 900.

4). Simpkins Co. disposed of an asset at the end of year 8 of the asset's life originally estimated to be 10 years. The original cost was $50,000 with an estimated residual value of $5,000 and it was being depreciated under the straight-line method. It was sold for $10,000 cash. What was the gain or loss on the disposal at the end of year 8?

A)$4,000 gain

B)$4,000 loss

C)$1,000 gain

D)No gain or loss

5). If the market rate of interest is 6%, a $10,000, 10-year bond with a stated annual interest rate of 8% would issue at an amount:

A. / less than face value.
B. / equal to the face value.
C. / greater than face value.
D. / that cannot be determined.

6). A company sells 1 million shares of common stock with a par value of $0.02 for $15 a share. To record the transaction, the company would:

A. / Increase Cash for $20,000 and increase Common Stock for $20,000.
B. / Increase Cash for $15 million and increase Common Stock for $15 million.
C. / Increase Cash for $15 million, increase Common Stock for $20,000 and increase
additional paid-in Capital for $14,980,000.
D. / Increase Cash for $20,000, increase Capital Receivable for $14,980,000, increase
Common Stock for $20,000 and increase additional paid-in capital for $14,980,000.
7). GE buys back 300,000 shares of its stock from investors at $45 a share. Two years later it reissues this stock for $65 a share. The stock reissue would be recorded as:
A. / An increase to Cash of $19.5 million and a decrease to Treasury Stock of $19.5 million.
B. / An increase to Cash of $13.5 million, an increase to Additional Paid-in Capital of
$6 million, a decrease to Treasury Stock of $13.5 million, and an increase to
Stockholders' Equity of $6 million.
C. / An increase to Cash of $19.5 million, a decrease to Treasury Stock of $13.5 million,
and an increase to Additional Paid-in Capital of $6 million
D. / An increase to Cash of $13.5 million, and a decrease to Stockholders' Equity of
$6 million, a decrease to Treasury Stock of $13.5 million, and an increase to
Gain on Sale of $6 million.

8). During 2004, Thomas Company recorded bad debt expense of $15,000 and wrote off an uncollectible account receivable amount to $5,000. Assuming a January 1,2004, balance in the allowance for doubtful accounts of $10,000, the December 31, 2004 balance in the allowance account would be

$25,000
$20,000
$15,000
$5,000

9). The Pottery Barn has the following classes of stock:

Preferred stock, 8%, $100 par, 100,000 shares issued and outstanding, cumulative.

Common stock, par $5, 100,000 shares issued, 50,000 shares outstanding.

The Pottery Barn was incorporated in Delaware and it paid no dividends in its first year of existence. In its second year, the board of directors of The Pottery Barn declared a total dividend of $1,800,000 to be paid to the holders of preferred and common stock. What was the amount of the dividend paid in the second year on each share of common stock?

A)$4.00

B)$8.00

C)$1.10

D)$0.55

10). Use the following data to answer the next two questions:

Austin Corporation sold its $1,000,000, 7%, ten-year bonds to the public on January 1, 2004. The bonds pay interest annually, beginning on December 31, 2004. Austin received $1,153,420 in cash at the issuance of the bonds. The market rate of interest when the bonds were sold was 5%.

Compute the amount of the premium that Austin Corporation should amortize on December 31, 2004, assuming the effective-interest method is used.

A)$70,000

B)$57,671

C)$50,000

D)$12,329

What is the carrying value of the bond on December 31, 2005 assuming the effective-interest method is used?

A)$1,000,000

B)$1,128,146

C)$1,135,782

D)$1,153,420

12). The balance sheet of Warner Company showed the following data about its common stock, par $1: authorized shares, 5,000,000; outstanding shares, 2,300,000; and issued shares 2,500,000. Therefore, the number of treasury stock shares was

A)0.

B)2,700,000.

C)2,500,000.

D)200,000.

13). A company declares a 2/1 stock split. Which of the following is true?

A)Par value will increase.

B)Retained earnings would be decreased and contributed capital would be increased.

C)Total stockholders' equity would decrease.

D)No assets or liabilities are affected by the split.

14). On January 1, 2004, Summer Corporation sold a four-year, $10,000, 7% bond. The interest is payable annually each December 31. The issue price was $9,668 based on an 8% effective interest rate. Assuming effective-interest amortization is used, the interest expense on the 2005 income statement would be (to the nearest dollar)

a.$ 1,247.

b.$ 983

c.$ 779.

d. $ 740.

15). Wilson Co. wrote off a customer’s $4,000 past due account on May 1. The company uses the allowance method. As a result of the writeoff:

a.net income was not affected

b.bad debt expense increased $4,000

c.net accounts receivable decreased $4,000

d.the balance in the allowance account increased $4,000

16). Intangible assets include

A)Natural resources, patents, and trademarks.

B)Accounts receivable, franchises, and trademarks.

C)Copyrights, licenses, and land.

D) Leaseholds, patents and copyrights

17). In 1998, Delta Air Lines had a fixed asset turnover of 1.63 compared to Southwest Airlines of 1.10. What is the most likely cause of Delta's higher ratio? (Hint: Fixed Asset Turnover Ratio = Net Sales ÷ Average Fixed Assets)

A)Delta is less efficient in generating net sales from its operational assets.

B)Delta is more efficient at generating net income from employing its operational assets.

C)Delta is able to generate greater sales from its operational assets.

D)Delta is able to generate less net income from its operational assets.

18). The Widget Tool and Die Company buys a $400,000 stamping machine that has an estimated residual value of $20,000. The company expects the machine to produce two million units. It makes 400,000 units during the current period. If the units-of-production method is used, the depreciation expense for this period is:
A)$80,000.
B)$400,000.
C)$76,000.
D)$380,000.

19). Madison Motors, Inc., had the following shares outstanding during 2005:

(a)Preferred stock, 6%, $50 par value, cumulative, 1,000 shares with dividends in arrears for 2003 and 2004.

(b)Common stock, $100 par value, 2,000 shares.

The total dividends declared for the current year were $21,000. The total amount of dividends to which the preferred stockholders are entitled is

a.$ 3,000.

b.$ 6,000.

c.$ 9,000

d.$12,000.

20). A contingent liability that is “reasonably possible” but “cannot reasonably be estimated”

A)must be recorded and reported as a liability.

B)does not need to be recorded or reported as a liability.

C)must only be disclosed as a note to the financial statements.

D)must be reported as a liability, but not recorded.