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Multiple Choice Accounting Questions

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1. Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to
patents and amortized over the legal life of the patent.
legal fees and amortized over 5 years or less.
expenses of the period.
patents and amortized over the remaining useful life of the patent.

2. A loss on impairment of an intangible asset is the difference between the asset's carrying amount and the expected future net cash flows.
carrying amount and its fair value.
fair value and the expected future net cash flows.
book value and its fair value.

3.
The general ledger of Waner Corporation as of December 31, 2004, includes the following accounts:
Copyrights $ 40,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 67,500
Excess of cost over fair value of identifiable net assets of
acquired 490,000
Trademarks 90,000
In the preparation of Waner's balance sheet as of December 31, 2004, what should be reported as total intangible assets?
$714,500.
$647,000.
$620,000.
$580,000.

4. Costs incurred internally to create intangibles are
capitalized.

capitalized if they have an indefinite life.

expensed as incurred.

expensed only if they have a limited life.

5.
Which of the following methods of amortization is normally used for intangible assets?

Sum-of-the-years'-digits

Straight-line

Units of production
Double-declining-balance

6.
The cost of purchasing patent rights for a product that might otherwise have seriously competed with one of the purchaser's patented products should be

charged off in the current period.

amortized over the legal life of the purchased patent.

added to factory overhead and allocated to production of the purchaser's product.

amortized over the remaining estimated life of the original patent covering the product whose market would have been impaired by competition from the newly patented product.

7.
Riser Corporation was granted a patent on a product on January 1, 1995. To protect its patent, the corporation purchased on January 1, 2004 a patent on a competing product which was originally issued on January 10, 2000. Because of its unique plant, Riser Corporation does not feel the competing patent can be used in producing a product. The cost of the competing patent should be

amortized over a maximum period of 20 years.

amortized over a maximum period of 16 years.
amortized over a maximum period of 11 years.
expensed in 2004.

8.
When a patent is amortized, the credit is usually made to

the Patent account.

an Accumulated Amortization account.

a Deferred Credit account.

an expense account.

9.
If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as

research and development expense in the period(s) of construction.

depreciation deducted as part of research and development costs.

depreciation or immediate write-off depending on company policy.

an expense at such time as productive research and development has been obtained from the facility.

10.
In January, 1999, Sanford Corporation purchased a patent for a new consumer product for $1,200,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2004 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Sanford charge to expense during 2004, assuming amortization is recorded at the end of each year?

$800,000
$600,000
$120,000
$80,000

11.
Gomez Corp. incurred $350,000 of research and development costs to develop a product for which a patent was granted on January 2, 1999. Legal fees and other costs associated with registration of the patent totaled $100,000. On March 31, 2004, Gomez paid $150,000 for legal fees in a successful defense of the patent. The total amount capitalized for the patent through March 31, 2004 should be

$250,000.
$450,000.
$500,000.
$600,000.

12.
On May 5, 2004, Pitts Corp. exchanged 6,000 shares of its $25 par value treasury common stock for a patent owned by Denson Co. The treasury shares were acquired in 2003 for $135,000. At May 5, 2004, Pitts' common stock was quoted at $32 per share, and the patent had a carrying value of $165,000 on Denson's books. Pitts should record the patent at

$135,000.
$150,000.
$165,000.
$192,000.

13.
Which of the following costs should be excluded from research and development expense?

Modification of the design of a product

Acquisition of R & D equipment for use on a current project only
Cost of marketing research for a new product
Engineering activity required to advance the design of a product to the manufacturing stage

14.
January 2, 2001, Koll, Inc. purchased a patent for a new consumer product for $270,000. At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product. On December 31, 2004, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product. What amount should Koll charge against income during 2004, assuming amortization is recorded at the end of each year?

$27,000.
$162,000.
$189,000.
$216,000.

15.
On January 1, 2000, Watts Company purchased a copyright for $600,000, having an estimated useful life of 16 years. In January 2004, Watts paid $90,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2004, should be
$0.
$37,500.
$43,125.
$45,000.

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Solution Preview

1. Wriglee, Inc. went to court this year and successfully defended its patent from infringement by a competitor. The cost of this defense should be charged to
patents and amortized over the legal life of the patent.
legal fees and amortized over 5 years or less.
expenses of the period.
patents and amortized over the remaining useful life of the patent.

Answer: patents and amortized over the remaining useful life of the patent.
2. A loss on impairment of an intangible asset is the difference between the asset's carrying amount and the expected future net cash flows.
carrying amount and its fair value.
fair value and the expected future net cash flows.
book value and its fair value.

Answer: asset's carrying amount and the expected future net cash flows.
3.
The general ledger of Waner Corporation as of December 31, 2004, includes the following accounts:
Copyrights $ 40,000
Deposits with advertising agency (will be used to promote goodwill) 27,000
Discount on bonds payable 67,500
Excess of cost over fair value of identifiable net assets of
acquired 490,000
Trademarks 90,000
In the preparation of Waner's balance sheet as of December 31, 2004, what should be reported as total intangible assets?
$714,500.
$647,000.
$620,000.
$580,000.

Answer: $620,000.
Copyrights $ 40,000
Excess of cost over fair value of identifiable net assets of
acquired 490,000
Trademarks 90,000
Total 620,000
4. Costs incurred internally ...

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Accounting: multiple choice, matching, short problems, definitions, classification, ratios

Instructions: Designate the best answer for each of the following questions.
____ 1. Which of the following is a separate legal entity?
a. Proprietorship
b. Sole proprietorship
c. Corporation
d. Partnership

____ 2. Indicate which of the following items would not be reported in the operating section of the Statement of Cash Flows
a. Cash received from customers
b. Cash paid for dividends.
c. Cash paid for salaries.
d. Cash received for dividends.

____ 3. A financial statement that reports accounting data at a specific date is the
a. balance sheet.
b. retained earnings statement.
c. income statement.
d. statement of cash flows.

____ 4. Which of the following is not considered an external user of accounting information?
a. Bankers
b. Taxing authority
c. Manager
d. Labor Unions

____ 5. GAAP refers to
a. General Accounting and Auditing Principles.
b. Guidelines for American Accounting Procedures.
c. General Association of Accounting Practitioners.
d. Generally Accepted Accounting Principles.

____ 6. Which is an indicator of profitability?
a. Current ratio.
b. Earnings per share.
c. Free cash flow.
d. Working capita.

____ 7. Which of the following is false?
a. Intangible assets are noncurrent assets that do not have physical substance.
b. Obligations expected to be paid after one year are classified as long-term liabilities.
c. Current assets are listed in the order of magnitude (size).
d. Property, plant, and equipment are assets with relatively long useful lives that are used in operating the business.

____ 8. If total liabilities decreased by $30,000 during a period of time and owners equity increased by $35,000 during the same period, the amount and direction (increase or decrease) of the period's change in total assets is a:
a. $65,000 increase.
b. $5,000 increase.
c. $5,000 decrease.
d. $65,000 decrease.

____ 9. Current assets are listed
a. alphabetically.
b. by importance.
c. by longevity.
d. by liquidity.

____ 10. To be relevant, accounting information must
a. be capable of making a difference in a decision.
b. be presented on the balance sheet.
c. be recorded at historical cost.
d. improve the company's internal control.
.

____ 11. In accounting, which of the following is not a description of reliability as it relates to accounting information?
a. Verifiable
b. Be the least likely to overstate assets or income
c. A faithful representation
d. Neutral

____ 12. Financial statements combining the operations of Kohls and Target would violate the
a. monetary unit assumption.
b. economic entity assumption.
c. cost principle.
d. full disclosure principle.

____ 13. Limited liability (no liability beyond investment) is not enjoyed by the owner(s) of a
a. partnership and proprietorship.
b. partnership and corporation.
c. proprietorship and corporation.
d. corporation.

____ 14. The Retained Earnings account had a beginning balance of $60,000 and an ending balance of $70,000. If $20,000 of dividends were declared and paid during the period, net income must have been
a. $20,000.
b. $30,000.
c. $10,000.
d. $50,000.

PART II?MATCHING: FINANCIAL STATEMENT ANALYSIS (8 points)

Instructions
Match the terms given below with the definitions or descriptions that follow by placing the appropriate letter in the space provided.

A. Liquidity E. Profitability
B. Earnings per share F. Dividends
C. Debt to total assets ratio G. Working capital
D. Current ratio H. Solvency

1. Current assets divided by current liabilities.

2. Measures of the income or operating success of an enterprise for a given period of time.

3. Distribution of cash or other assets from a corporation to its stockholders.

4. A measure of the net income earned on each share of common stock.

5. The ability of a borrower to pay obligations when they become due.

6. Measures the percentage of total assets that creditors provide.

7. Measures the ability of an enterprise to survive over a long period of time.

8. The excess of current assets over current liabilities.

PART III ? SHORT PROBLEMS (10 points)

Instructions
Present the solutions, with appropriate supporting calculations, for each of the following independent problems.

A. Given the following information, compute 2007 net income for Lanon Company.
Stockholders' equity?January 1, 2007 $150,000
Stockholders' equity?December 31, 2007 175,000
Stockholder investments during 2007 15,000
Dividends paid during 2007 30,000

B. Given the following information, determine the three missing amounts.

Stockholders' Equity
Beginning of the Year End of the Year Changes During the Year
Total Assets $60,000 Total Assets $85,000 Investments $10,000
Total Liabilities ??? Total Liabilities 40,000 Dividends 25,000
Total Stockholders' Equity 35,000 Total Stockholders' Equity ??? Revenues 70,000
Expenses ???
Total Change $1 5,000

PART IV ? TYPES OF ACCOUNTS (10 points)

Instructions
Place a check in the appropriate column to designate whether each of the following accounts is an asset, a liability, or a stockholders' equity account.

Account Asset Liability Stockholders' Equity

1. Service Revenue

2. Insurance Expense

3. Supplies

4. Common Stock

5. Accounts Payable

6. Salaries Payable

7. Dividends

8. Accounts Receivable

9. Prepaid Insurance

10. Mortgage Payable

PART V ? BALANCE SHEET CLASSIFICATIONS (18 points)

Instructions
Match the account titles given below with the appropriate Balance Sheet classification. An individual classification may be used more than once, or not at all. An account may also not appear in the balance sheet.
Classifications
A. Current Assets E. Current Liabilities
B. Long-term Investments F. Long-term Liabilities
C. Property, Plant and Equipment G. Stockholders' Equity
D. Intangible Assets H. Not separately presented on the Balance Sheet

Account Titles

1. Common Stock 10. Prepaid Insurance

2. Unearned Rent Revenue 11. Bonds Payable

3. Supplies 12. Taxes Payable

4. Accounts Payable 13. Copyrights

5. Patents 14. Accounts Receivable

6. Salaries Payable 15. Mortgage Payable

7. Equipment 16. Dividends

8. Service Revenue 17. Accumulated Depreciation?Equipment

9. Rent Expense 18. Retained Earnings

PART VI ? RATIOS (12 points)

Selected information from the financial statements of Stiller Company for the year ended December 31, 2007, appears below:
2007
Current assets $ 525,000
Total assets 1,375,000
Current liabilities 150,000
Long-term liabilities 400,000
Net sales 1,500,000
Gross profit 600,000
Net income 150,000

Instructions
Answer the following questions relating to the year ended December 31, 2007. The number of shares outstanding at the end of the year was 10,000. Show computations.
1. The current ratio for 2007 is __________.
2. The debt to total assets ratio for 2007 is __________.
3. The working capital for 2007 is __________.
4. The earnings per share for 2007 is __________.

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