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    Accounting Concepts

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    1. Notes or accounts receivables that result from sales transactions are often called
    a Sales receivables.
    b Non-trade receivables.
    c Trade receivables.
    d Merchandise receivables.

    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?
    a $30
    b $15
    c $180
    d $6

    8. The accounts affected by the journal entry made by Fred's Sport Shop to record the finance charge are
    a Dr: Accounts Receivable
    Cr: Cash
    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 $92,200.
    b $90,000.
    c $94,700.
    d $92,500.

    10. Goodwill
    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.
    c $0.
    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
    a $16,200.
    b $7,500.
    c $6,750.
    d $3,375.

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

    15. Bond discount should be amortized to comply with
    a The historical cost principle.
    b The matching principle.
    c The revenue recognition principle.
    d Conservatism.

    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.
    d Zero.

    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.

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    Solution Summary

    This solution explains the basic concepts of accounting like principles of accounting and journal entries.

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