2. Which one of the following is not a primary problem associated with accounts receivable?
a Depreciating accounts receivable
b Recognizing accounts receivable
c Valuing accounts receivable
d Disposing of accounts receivable
3. Which of the following would require a compound journal entry?
a To record merchandise returned that was previously purchased on account.
b To record sales on account.
c To record purchases of inventory when a discount is offered for prompt payment.
d To record collection of accounts receivable when a cash discount is taken.
4. On the statement of cash flows using the indirect method, patent amortization expense will
a Be added to net income in the operating section.
b Be deducted from net income in the operating section.
c Appear as an inflow of cash in the investing section.
d Appear as an outflow of cash in the investing section.
5. If $500,000 of bonds are issued during the year but $300,000 of old bonds are retired during the year, the statement of cash flows will show a(n)
a Net increase in cash of $200,000.
b Net decrease in cash of $200,000.
c Increase in cash of $500,000 and a decrease in cash of $300,000.
d Net gain on retirement of bonds of $200,000.
6. The cash debt coverage ratio is computed by dividing net cash provided by operating activities by
a Average current liabilities.
b Net sales.
c Average long-term liabilities.
d Average total liabilities.
Use the following information for questions 7 - 8.
A customer charges a treadmill at Fred's Sport Shop. The price is $1,000 and the financing charge is 18% per annum if the bill is not paid in 30 days. The customer fails to pay the bill within 30 days and a finance charge is added to the customer's account.
7. What is the amount of the finance charge?
8. The accounts affected by the journal entry made by Fred's Sport Shop to record the finance charge are
a Dr: Accounts Receivable
b Dr: Cash
Cr: Finance Receivable
c Dr: Accounts Receivable
Cr: Interest Payable
d Dr: Accounts Receivable
Cr: Interest Revenue
9. Hardy Clinic purchases land for $90,000 cash. The clinic assumes $1,500 in property taxes due on the land. The title and attorney fees totaled $1,000. The clinic has the land graded for $2,200. What amount does Hardy Clinic record as the cost for the land?
a Is only recorded when generated internally.
b Can be sold individually.
c Can be identified only with the business as a whole.
d Is the excess of cost over the fair market value of total assets.
11. A computer company has $4,000,000 in research and development costs. Before accounting for these costs, the net income of the company is $2,500,000. What is the amount of net income or loss after these research and development costs are accounted for?
a $1,500,000 loss.
b $2,500,000 net income.
d Cannot be determined from the information provided.
12. On July 1, 2003, Morrow Company purchased a patent for $81,000. The patent had a remaining legal life of 12 years. It is estimated that the patent will have a useful life of 5 years with an estimated salvage value of $6,000. The amount of Amortization Expense recognized for the year 2003 would be
13. Which of the following is not an intangible asset arising from a government grant?
d Trade name
14. In the balance sheet, the account, Premium on Bonds Payable, is
a Added to bonds payable.
b Deducted from bonds payable.
c Classified as a stockholders' equity account.
d Classified as a revenue account.
16. The per share amount normally assigned by the board of directors to a large stock dividend is
a The market value of the stock on the date of declaration.
b The average price paid by stockholders on outstanding shares.
c The par or stated value of the stock.
17. Identify the effect the declaration of a stock dividend has on the par value per share and book value per share.
Par Value per Share Book Value Per Share
a Increase Decrease
b No effect Increase
c Decrease Decrease
d No effect Decrease
18. If a corporation declares a 10% stock dividend on its common stock, the account to be debited on the date of declaration is
a Common Stock Dividends Distributable.
b Common Stock.
c Paid-in Capital in Excess of Par.
d Retained Earnings.
19. Indicate the respective effects of the declaration of a cash dividend on the following balance sheet sections:
Total Assets Total Liabilities Total Stockholders' Equity
a Increase Decrease No Change
b No change Increase Decrease
c Decrease Increase Decrease
d Decrease No Change Increase
20. Long-term creditors are usually most interested in evaluating
a Liquidity and solvency.
b Solvency and marketability.
c Liquidity and profitability.
d Profitability and solvency.
This solution explains the basic concepts of accounting like principles of accounting and journal entries.