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Cash realizable valve and bad debt expenses

1. If a company fails to record estimated bad debts expense,

a. cash realizable valve is understated
b. expenses are understated
c. revenues are understated
d. receivables are understated

2. Stiner Company acquires land for $36,000 cash. Additional costs are as follows:
Removal of shed $ 300
Filling and grading 1,500
Salvage value of lumber of shed 120
Broker commission 1,130
Paving of parking lot 10,000
Closing cost 560

Stiner will record the acquisition cost of the land as
a. $36,000
b. $37,690
c. $39,610
d. $39,370

3. On July 1,2000, Shannon Kennels sells equipment for $44,000. The equipment originally cost $120,000, had an estimated 5-year life and an excepted salvage value of $20,000.The Accumulated Depreciation account had a balance of $70,000 on January 1,2000. Using the straight-line method. The gain or loss on disposal is

a. $6,000 gain
b. $4,000 loss
c. $6,000 loss
d. $4,000 gain

4. The present value of a $10,000,5-year bond, will be less than $10,000 if the

a. contractual rate of interest is less than he market rate of interest
b. contractual rate of interest is greater than the market rate of interest
c. bond is convertible
d. contractual rate of interest is equal to the market rate of interest

5. 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

6. The declaration and distribution of a stock dividend will

a. increase total stockholders' equity
b. increase total assets
c. decrease total assets
d. have no effect on total assets

7. On January 1, Calvin Company purchased as a temporary investment a $1,000,12%, bond, for $1,040. The bond pays interest on January 1 and July 1. The bond is sold on October 1 for $1,050 plus accrued interest. Interest has not been accrued since the last interest payment date. What is the entry to record the cash proceeds at the time the bond is sold?

a. Cash 1,050
Debt Investments 1,050

b. Cash 1,080
Debt Investments 1,040
Gain on Sale of Debt Investments 10
Interest Revenue 30

c. Cash 1.080
Debt Investments 1,050
Interest Revenue 30

d. Cash 1,050
Debt Investments 1,040
Interest Revenue 10

8. Which of the following is not a true statement about the accounting for long-term debt investments?

a. the investment is initially recorded at cost
b. the cost includes any brokerage fees
c. the accounting for long-term debt investments is similar to the accounting for temporary debt investments
d. the cost includes any accrued interest

9. King Corporation makes a temporary investment in 100 shares for Renfro Company's common stock. The stock is purchased for $50 a share plus brokerage fees of $300. The entry for the purchase is:

a. Debt Investments 5,000
Cash 5,000

b. Stock Investments 5,300
Cash 5,300

c. Stock Investments 5,000
Brokerage Fee Expense 300
Cash 5,300

d. Stock Investments 5,000
Cash 5,000

10. Under the equity method of accounting for long-term investments in common stock, when a dividend is received form the investee company,
a. the Dividend Revenue account is credited
b. the Stock Investments account is increased
c. the Stock Investments account is decreased
d. no entry is necessary

Use the following information for questions 11 - 12:
Gorman Corporation's trading portfolio at the end of the year is as follows:

Security Cost Market Value
Common Stock A $12,000 $14,000
Common Stock B 8,000 5,000
$20,000 $19,000

11. At the end of the year, Gorman Corporation should

a) set up a Market Adjustment account for Stock B
b) set up a Market Adjustment account for the portfolio
c) recognize an Unrealized Gain or Loss-Income for $3,000
d) report a loss on the income statement for $3,000 under "Other Expenses and Losses."

12. Gorman subsequently sell Stock B for $12,000. What entry is made to record the sale?
a. Cash 12,000
Stock Investments 12,000

b. Cash 12,000
Market Adjustment 4,000
Stock Investments 8,000

c. Cash 12,000
Stock Investments 8,000
Gain on sale of stock Investments 4,000

d. Cash 12,000
Stock Investments 6,000
Gain on Sale of Stock Investments 6,000

13. Which of the following would not be classified as a temporary investment?

a. Short-term commercial paper
b. Idle cash in a bank checking account
c. Marketable equity securities
d. Marketable debt securities

14. If a company reports a net loss, it

a. may still have a net increase in cash
b. will not be able to pay cash dividends
c. will not be able to get a loan
d. will not be able to make capital expenditures

15. Which of the following transactions does not affect cash during a period?

a. Write-off of an uncollectible account
b. Collection of an accounts receivable
c. Sale of treasury stock
d. Exercise of the call option on bonds payable

16. If accounts receivable have increased during the period,

a. revenues on an accrual basis are less than revenues on a cash basis
b. revenues on an accrual basis are greater than revenues on a cash basis
c. revenues on an accrual basis are the same as revenues on a cash basis
d. expenses on an accrual basis are greater than expenses on a cash basis

17. If accounts payable have increased during a period,

a. revenues on an accrual basis are less than revenues on a cash basis
b. expenses on an accrual basis are less than expenses on a cash basis
c. expenses on an accrual basis are greater than expenses on a cash basis
d. expenses on an accrual basis are the same as expenses on a cash basis

18. Using the indirect method, if equipment is sold at a gain, the

a. sale proceeds received are deducted in the operating activities section
b. sale proceeds received are added in the operation activities section
c. amount of the gain is added in the operation activities section
d. amount of the gain is deducted in the operation activities section

19. Rader Company had credit sales of $700,000. The beginning accounts receivable valance was $40,000 and the ending accounts receivable balance was $140,000. What were3 the cash collections from customers during the period?

a. $800,000
b. $700,000
c. $600,000
d. $740,000

Use the following information for questions 20 - 21:

Smoltz Company had $375,000 of current assets and $135,000 of current liabilities before borrowing $90,000 form the bank with a 3-month note payable.

20. What effect did the borrowing transaction have on the amount of Smoltz Company's working capital?

a. No effect
b. $90,000 increase
c. $135,000 increase
d. $90,000 decrease

21. What effect did the borrowing transaction have on Smoltz Company's current ratio?

a. The ratio remained unchanged
b. The change in the current ratio cannot be determined
c. The ratio decreased
d. The ratio increased

22. If equal amounts are added to the numerator and the denominator of the current ratio, the ratio will always

a. Increase
b. Decrease
c. stay the same
d. equal zero

23. A company has an average inventory on hand of $40,000 and the average days to sell inventory is 29.2 days. What is the cost of goods sold?

a. $500,000
b. $1,168,000
c. $493,151
d. $584,000

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Please see the attached file. Answers and explanations in blue

1. If a company fails to record estimated bad debts expense,

a. cash realizable valve is understated
b. expenses are understated
c. revenues are understated
d. receivables are understated

Since the bad debt expense are not recorded, the expenses are understated

2. Stiner Company acquires land for $36,000 cash. Additional costs are as follows:
Removal of shed $ 300
Filling and grading 1,500
Salvage value of lumber of shed 120
Broker commission 1,130
Paving of parking lot 10,000
Closing cost 560

Stiner will record the acquisition cost of the land as
a. $36,000
b. $37,690
c. $39,610
d. $39,370

The cost of land is the purchase cost and all expenses incurred in making the lad ready for use. The cost of land is
Cost 36,000
Removal of shed $ 300
Filling and grading 1,500
Salvage value of lumber of shed -120
Broker commission 1,130
Closing cost 560
Total 39,370
Salvage value of lumber is an inflow and so is negative. Paving for parking lot is land improvements

3. On July 1,2000, Shannon Kennels sells equipment for $44,000. The equipment originally cost $120,000, had an estimated 5-year life and an excepted salvage value of $20,000.The Accumulated Depreciation account had a balance of $70,000 on January 1,2000. Using the straight-line method. The gain or loss on disposal is

a. $6,000 gain
b. $4,000 loss
c. $6,000 loss
d. $4,000 gain

The depreciation per year is 120,000-20,000/5=20,000
The depreciation for Jan to June of 2000 is 10,000
The total accumulated depreciation as on July 1,2000 is 80,000
Book Value = 120,000-80,000=40,000
The equipment is sold for 44,000
There is a gain of 4,000 on disposal.

4. The present value of a $10,000,5-year bond, will be less than $10,000 if the

a. contractual rate of interest is less than he market rate of interest
b. contractual rate of interest is greater than the market rate of interest
c. bond is convertible
d. contractual rate of interest is equal to the market rate of interest

If the contractual rate of return is less, then the bond payments would be discounted at a higher market rate. This would reduce the PV of the bond cash flows and so the PV will be less than the face value.

5. 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

6. The declaration and distribution of a stock dividend will

a. increase total stockholders' equity
b. increase total assets
c. decrease total assets
d. have no effect on total assets

A ...

Solution Summary

The solution explains various multiple choice questions in accounting

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