ACCT 201 Final Exam Answers
1. The term “double taxation” refers to which of the following:
A. A sole proprietorship must pay income taxes on its net income and the owner is also required to pay income taxes on withdrawals.
B. In a partnership, both partners are required to claim their share of net income on their tax returns.
C. Corporations must pay income taxes on their net income, and their stockholders must pay income taxes on their dividends.
D. A sole proprietorship must pay income taxes to both the state government and the federal government.
2. Which of the following is not considered an advantage of the corporate form of business organization?
A. Ability to raise capital.
B. Government regulation.
C. Ease of transferability of ownership.
D. Continuity of existence.
3. Which of the following entities would have the “Paid-in Capital in Excess” account in the equity section of the balance sheet?
A. A sole proprietorship.
B. A city.
C. A corporation.
D. A partnership.
4. Which of the following terms designates the maximum number of shares of stock that a corporation may issue?
A. number of shares outstanding
B. number of shares authorized
C. treasury stock
D. number of shares issued
5. Which of the following statements best describes the term “par value?”
A. an amount used in determining a corporation’s legal capital.
B. the amount that must be paid to purchase a share of stock.
C. determined by dividing total stockholder’s equity by the number of shares of stock.
D. the number of shares currently in the hands of stockholders.
6. Flint Corp. issued 10,000 shares of no-par stock for $150,000. Flint was authorized to issue 25,000 shares. What effect will this event have on the company’s accounting equation?
A. Increase assets by $375,000 increase, equity by $375,000.
B. Increase assets by $150,000, increase net income by $150,000.
C. Increase assets by $150,000, increase equity by $150,000.
D. Both B and C.
7. Flint Company issued 2,000 shares of $10 par value common stock at a market price of $16. As a result of this accounting event, the amount of stockholders’ equity would
A. increase by $12,000.
B. be unaffected.
C. increase by $32,000.
D. increase by $20,000.
8. Madison Co. paid dividends of $3,000; $6,000; and $10,000 during 2007, 2008 and 2009, respectively. The company had 500 shares of preferred stock outstanding that paid a $10 per share cumulative dividend. The amount of dividends received by the common shareholders during 2009 would be:
A. $5,000.
B. $4,000.
C. $3,000.
D. $2,000.
9. On January 1, 2007, the Accounts Receivable balance was $9,000 and the balance in the Allowance for Doubtful Accounts was $700. On January 15, 2007 a $200 uncollectible account was written-off. The net realizable value of accounts receivable immediately after the write-off is:
A. $9,500.
B. $8,500.
C. $8,300.
D. $9,200.
On January 1, 2007 Grant Company had a $4,000 balance in the Accounts Receivable account and a zero balance in the Allowance for Doubtful Accounts account. During 2007, Grant provided $25,000 of service on account. The company collected $24,000 cash from account receivable. Bad debts are estimated to be 2% of sales on account.
10. Based on this information, the amount of cash flow from operating activities that would appear on the 2007 statement of cash flows is:
A. $24,850.
B. $25,000.
C. $22,900.
D. $24,000.
11. The amount of bad debts expense to recognize on the 2007 income statement is:
A. $80.
B. $250.
C. $480.
D. $500.
The Morgan Company earned $45,000 of revenue on account during 2009. There was no beginning balance in the accounts receivable and allowance accounts. During 2009 Morgan collected $34,000 of cash from its receivables accounts. The company estimates that it will be unable to collect 3% of its sales on account.
12. The amount of bad debts expense recognized on the 2009 income statement was
A. $1,020.
B. $330.
C. $1,350.
D. $11,000.
13. Hall Company uses the allowance method to account for bad debts. An account that had been previously written-off as uncollectible was recovered. How would the recovery affect the company’s accounting equation?
A. Increase assets and increase equity.
B. Increase assets and decrease liabilities.
C. Reduce liabilities and increase equity.
D. Have no effect on assets, liabilities or equity.
14. How would accountants estimate the amount of a company’s bad debts expense?
A. Consider new circumstances that are anticipated to be experienced in the future.
B. Compute as a percentage of credit sales.
C. Consult with trade association and business associates.
D. All of these.
15. A company that uses the allowance method to account for bad debts
A. Reports the net realizable value of its accounts receivable on the balance sheet.
B. Does not record bad debts until the amount becomes significant.
C. Records Bad Debts Expense when a receivable is written off.
D. None of these.
16. Which accounting concept can be used by some companies to justify the use of the direct write-off method of accounting for bad debts?
A. The entity concept.
B. The materiality concept.
C. The going concern concept.
D. The monetary principle.
17. Which of the following would be classified as a tangible asset?
A. Copyright.
B. Goodwill.
C. Iron ore deposit.
D. Patent.
18. Which of the following would be classified as a long-term operational asset?
A. Accounts receivable.
B. Treasury stock.
C. Inventory.
D. Goodwill.
19. On January 6, 2008, the El Gato Corporation purchased a tract of land for a factory site for $500,000. An existing building on the site was demolished and the new factory was completed on October 11, 2008. Additional cost data are shown below:
Which of the following correctly states the capitalized cost of the (a) land and (b) the new building?
A. $501,500/$863,700
B. $508,200/$857,000
C. $556,200/$800,000
D. $555,700/$809,000
20. Mobley Company purchased an asset with a list price of $35,000 and received a 2% cash discount on the purchase. The asset was delivered under terms FOB shipping point, and freight costs amounted to $700. Mobley paid $800 to have the asset installed. Insurance costs to protect the asset from fire and theft amounted to $400 for the first year of operations. Based on this information, the amount of cost recorded in the asset account would be:
A. $36,500.
B. $36,900.
C. $35,000.
D. $35,800.
21. Which of the following is considered an accelerated depreciation method?
A. Straight line
B. Units of production
C. LIFO
D. Double declining balance
22. Which method of depreciation is used by most U. S. companies for financial reporting purposes?
A. Straight line
B. Units of production
C. Double declining balance
D. MACRS
23. At the end of the current accounting period, Rodgers Co. recorded depreciation of $25,000 on its equipment. The effect of this entry on the company’s balance sheet is to:
A. decrease assets and increase liabilities.
B. decrease owners’ equity and increase liabilities.
C. decrease assets and increase owners’ equity.
D. decrease owners’ equity and decrease assets.
24. On January 1, 2007, Franz Company purchased a truck that cost $22,000. The truck had an expected useful life of 5 years and a $4,000 salvage value. The amount of depreciation expense recognized in 2007 assuming that Franz uses the double declining balance method is:
A. $4,320.
B. $5,280.
C. $7,200.
D. $8,800.
25. On January 1, 2007, Franz Company purchased a truck that cost $22,000. The truck had an expected useful life of 5 years and a $4,000 salvage value. The amount of depreciation expense recognized in 2008 assuming that Franz uses the double declining balance method is:
A. $4,320.
B. $5,280.
C. $7,200.
D. $8,800.
26. Which of the following statements concerning internal controls is true?
A. Internal administrative controls are designed to limit the amount of funds spent on investments.
B. The control procedure, separation of duties, prohibits the employment of a husband and wife or other closely related parties within the same company.
C. Internal accounting controls are limited to the policies and procedures used to protect the company from embezzlement.
D. Strong internal controls provide reasonable assurance that the objectives of a company will be accomplished.
27. Which of the following statements accurately describes a fidelity bond?
A. Insurance that the company buys to protect itself from loss due to employee dishonesty.
B. Proper procedures for processing transactions.
C. Procedures to provide reasonable assurance that the objectives of a company are accomplished.
D. Guidelines or policies that limit the actions of different levels of management.
28. What documentation issued by a bank increases a company’s checking account balance at the bank?
A. balance sheet
B. debit memo
C. credit memo
D. certified check
29. At March 31, Carrie Co. had a balance in its cash account of $5,500. At the end of March the company determined that it had outstanding checks of $900, deposits in transit of $600, a bank service charge of $20, and an NSF check from a customer for $200. The true cash balance at March 31 is:
A. $5,200
B. $5,280
C. $5,500
D. $4,980
30. In preparing the April bank reconciliation for G2-Net Company, it was discovered that on April 10 a check was written to pay delivery expense of $45 but the check was erroneously recorded as $54 in the company’s books. The journal entry required to correct the error is
A.
B.
C.
D.
31. In a bank reconciliation, a customer’s NSF check included with the bank statement is:
A. deducted from the bank’s cash balance to get the true cash balance.
B. added to the bank’s cash balance to get the true cash balance.
C. deducted from the company’s cash balance to get the true cash balance.
D. added to the company’s cash balance to get the true cash balance.
32. In a period of rising prices, which inventory costing method will produce an amount for cost of goods sold that is closest to current market value ?
A. Weighted average.
B. Specific identification.
C. FIFO.
D. LIFO.
33. When prices are falling:
A. LIFO will result in lower income and a lower inventory valuation than will FIFO.
B. LIFO will result in lower income and a higher inventory valuation than will FIFO.
C. LIFO will result in higher income and a lower inventory valuation than will FIFO.
D. LIFO will result in higher income and a higher inventory valuation than will FIFO.
34. Hall Company purchased two identical inventory items. The item purchased first cost $12.00. The item purchased second cost $15.00. Hall sold one of the inventory items for $20.00. Based on this information:
A. the amount of ending inventory is $12.00 if Hall uses the LIFO cost flow method.
B. the amount of gross margin is $5.00 if Hall uses the weighted average cost flow method.
C. the amount of cost of goods sold is $12.00 if Hall uses the weighted average cost flow method.
D. the amount of gross margin is $5.00 if Hall uses the FIFO cost flow method.
35. Which of the following accounts normally has a debit balance?
A. Accounts Payable
B. Accumulated Depreciation
C. Prepaid Insurance
D. Common Stock
36. The left side of a T-account is known as the:
A. Equity side
B. Claims side
C. Debit side
D. Credit side
37. The difference between the debit and credit side of a T-account is known as the
A. Net income.
B. Account balance.
C. Equality.
D. Trial balance.
38. Which of the following is increased with a credit?
A. Salaries Expense
B. Prepaid Rent
C. Dividends
D. Accounts Payable
39. Revenue on account amounted to $5,000. Cash collections of accounts receivable amounted to $2,300. Expenses for the period were $2,100. Net income for the period was
A. $200.
B. $350.
C. $3,050.
D. $2,900.
40. The Blumer Company issued stock for $30,000 cash on January 20, 2007. During 2007, the company recorded revenue on account of $12,000 and expenses for which cash was paid of $7,000. Blumer received $8,200 cash from accounts receivable. The company also purchased land for $5,000 cash. Based on this information, the amount of change in cash for 2007 was
A. $38,200
B. $26,200
C. $31,500
D. $30,000
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