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Multiple choice question in Accounting

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1. Which of the following items should not be included in the Cash caption on the balance sheet?
A) Coins and currency in the cash register
B) Checks from other parties presently in the cash register
C) Amounts on deposit in checking account at the bank
D) Postage stamps on hand

2. Bank overdrafts, if material, should be
A) reported as a deduction from the current asset section.
B) reported as a deduction from cash.
C) netted against cash and a net cash amount reported.
D) reported as a current liability.

3. Which of the following is a method to generate cash from accounts receivable?

A) A
B) B
C) C
D) D

4. If the beginning inventory for 2006 is overstated, the effects of this error on cost of goods sold for 2006, net income for 2006, and assets at December 31, 2007, respectively, are
A) overstatement, understatement, overstatement.
B) overstatement, understatement, no effect.
C) understatement, overstatement, overstatement.
D) understatement, overstatement, no effect.

5. In situations where there is a rapid turnover, an inventory method which produces a balance sheet valuation similar to the first-in, first-out method is
A) average cost.
B) base stock.
C) joint cost.
D) prime cost.

6. During periods of rising prices, a perpetual inventory system would result in the same dollar amount of ending inventory as a periodic inventory system under which of the following inventory cost flow methods?

A) A
B) B
C) C
D) D

7. Lower-of-cost-or-market
A) is most conservative if applied to the total inventory.
B) is most conservative if applied to major categories of inventory.
C) is most conservative if applied to individual items of inventory.
D) must be applied to major categories for taxes.

8. On January 1, 2007, the merchandise inventory of Colaw, Inc. was $800,000. During 2007 Colaw purchased $1,600,000 of merchandise and recorded sales of $2,000,000. The gross profit rate on these sales was 25%. What is the merchandise inventory of Colaw at December 31, 2007?
A) $400,000.
B) $500,000.
C) $900,000.
D) $1,500,000.

9. Joe Crede Corporation sells its product, a rare metal, in a controlled market with a quoted price applicable to all quantities. The total cost of 5,000 pounds of the metal now held in inventory is $250,000. The total selling price is $600,000, and estimated costs of disposal are $10,000. At what amount should the inventory of 5,000 pounds be reported in the balance sheet?
A) $240,000.
B) $250,000.
C) $590,000.
D) $600,000.

10. Which of the following is not a major characteristic of a plant asset?
A) Possesses physical substance
B) Acquired for resale
C) Acquired for use
D) Yields services over a number of years

11. When a plant asset is acquired by issuance of common stock, the cost of the plant asset is properly measured by the
A) par value of the stock.
B) stated value of the stock.
C) book value of the stock.
D) market value of the stock.

12. When a plant asset is disposed of, a gain or loss may result. The gain or loss would be classified as an extraordinary item on the income statement if it resulted from
A) an involuntary conversion and the conditions of the disposition are unusual and infrequent in nature.
B) a sale prior to the completion of the estimated useful life of the asset.
C) the sale of a fully depreciated asset.
D) an abandonment of the asset.

13. Quayle Company acquired machinery on January 1, 2002 which it depreciated under the straight-line method with an estimated life of fifteen years and no salvage value. On January 1, 2007, Quayle estimated that the remaining life of this machinery was six years with no salvage value. How should this change be accounted for by Quayle?
A) As a prior period adjustment
B) As the cumulative effect of a change in accounting principle in 2007
C) By setting future annual depreciation equal to one-sixth of the book value on January 1, 2007
D) By continuing to depreciate the machinery over the original fifteen year life

14. A major objective of MACRS for tax depreciation is to
A) reduce the amount of depreciation deduction on business firms' tax returns.
B) assure that the amount of depreciation for tax and book purposes will be the same.
C) help companies achieve a faster write-off of their capital assets.
D) require companies to use the actual economic lives of assets in calculating tax depreciation.

15. On April 1, 2005, Reiley Co. purchased new machinery for $240,000. The machinery has an estimated useful life of five years, and depreciation is computed by the sum-of-the-years'-digits method. The accumulated depreciation on this machinery at March 31, 2007, should be
A) $160,000.
B) $144,000.
C) $96,000.
D) $80,000.

16. Which of the following methods of amortization is normally used for intangible assets?
A) Sum-of-the-years'-digits
B) Straight-line
C) Units of production
D) Double-declining-balance

17. Goodwill
A) generated internally should not be capitalized unless it is measured by an individual independent of the enterprise involved.
B) is easily computed by assigning a value to the individual attributes that comprise its existence.
C) represents a unique asset in that its value can be identified only with the business as a whole.
D) exists in any company that has earnings that differ from those of a competitor.

18. The following information is available for Barkley Company's patents:
Cost $1,720,000
Carrying amount 860,000
Expected future net cash flows 800,000
Fair value 640,000
Barkley would record a loss on impairment of
A) $1,080,000.
B) $220,000.
C) $160,000.
D) $60,000.

19. Which of the following may be a current liability?
A) Withheld Income Taxes
B) Deposits Received from Customers
C) Deferred Revenue
D) All of these

20. Which of these is not included in an employer's payroll tax expense?
A) F.I.C.A. (social security) taxes
B) Federal unemployment taxes
C) State unemployment taxes
D) Federal income taxes

21. Which of the following is not acceptable treatment for the presentation of current liabilities?
A) Listing current liabilities in order of maturity
B) Listing current liabilities according to amount
C) Offsetting current liabilities against assets that are to be applied to their liquidation
D) Showing current liabilities immediately below current assets to obtain a presentation of working capital

22. Bonds for which the owners' names are not registered with the issuing corporation are called
A) bearer bonds.
B) term bonds.
C) debenture bonds.
D) secured bonds.

23. The debt to total assets ratio is computed by dividing
A) current liabilities by total assets.
B) long-term liabilities by total assets.
C) total liabilities by total assets.
D) total assets by total liabilities.

Use the following to answer question 24:

On January 1, 2007, Bleeker Co. issued eight-year bonds with a face value of $1,000,000 and a stated interest rate of 6%, payable semiannually on June 30 and December 31. The bonds were sold to yield 8%. Table values are:
Present value of 1 for 8 periods at 6% .627
Present value of 1 for 8 periods at 8% .540
Present value of 1 for 16 periods at 3% .623
Present value of 1 for 16 periods at 4% .534
Present value of annuity for 8 periods at 6% 6.210
Present value of annuity for 8 periods at 8% 5.747
Present value of annuity for 16 periods at 3% 12.561
Present value of annuity for 16 periods at 4% 11.652

24. The present value of the principal is
A) $534,000.
B) $540,000.
C) $623,000.
D) $627,000.

25. The methods of accounting for a lease by the lessee are
A) operating and capital lease methods.
B) operating, sales, and capital lease methods.
C) operating and leveraged lease methods.
D) none of these.

Use the following to answer questions 26-27:

Hay Corporation enters into an agreement with Marly Rentals Co. on January 1, 2008 for the purpose of leasing a machine to be used in its manufacturing operations. The following data pertain to the agreement:
(a) The term of the noncancelable lease is 3 years with no renewal option. Payments of $155,213 are due on December 31 of each year.
(b) The fair value of the machine on January 1, 2008, is $400,000. The machine has a remaining economic life of 10 years, with no salvage value. The machine reverts to the lessor upon the termination of the lease.
(c) Hay depreciates all machinery it owns on a straight-line basis.
(d) Hay's incremental borrowing rate is 10% per year. Hay does not have knowledge of the 8% implicit rate used by Marly.
(e) Immediately after signing the lease, Marly finds out that Hay Corp. is the defendant in a suit which is sufficiently material to make collectibility of future lease payments doubtful.

26. What type of lease is this from Hay Corporation's viewpoint?
A) Operating lease
B) Capital lease
C) Sales-type lease
D) Direct-financing lease

27. If Hay accounts for the lease as an operating lease, what expenses will be recorded as a consequence of the lease during the fiscal year ended December 31, 2008?
A) Depreciation Expense
B) Rent Expense
C) Interest Expense
D) Depreciation Expense and Interest Expense

28. On June 30, 2008, Colt sold equipment to an unaffiliated company for $700,000. The equipment had a book value of $630,000 and a remaining useful life of 10 years. That same day, Colt leased back the equipment at $7,000 per month for 5 years with no option to renew the lease or repurchase the equipment. Colt's rent expense for this equipment for the year ended December 31, 2008, should be
A) $84,000.
B) $42,000.
C) $35,000.
D) $28,000.

29. A lessee with a capital lease containing a bargain purchase option should depreciate the leased asset over the
A) asset's remaining economic life.
B) term of the lease.
C) life of the asset or the term of the lease, whichever is shorter.
D) life of the asset or the term of the lease, whichever is longer.

30. While only certain leases are currently accounted for as a sale or purchase, there is theoretic justification for considering all leases to be sales or purchases. The principal reason that supports this idea is that
A) all leases are generally for the economic life of the property and the residual value of the property at the end of the lease is minimal.
B) at the end of the lease the property usually can be purchased by the lessee.
C) a lease reflects the purchase or sale of a quantifiable right to the use of property.
D) during the life of the lease the lessee can effectively treat the property as if it were owned by the lessee.

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Solution Summary

The problem set deals with questions in accounting including present value, stock valuation methods etc.

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  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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