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Acc 501 Final Exam Fall 2016 Section I - Multiple Choice - 30 Points.
Select the best answer and place the letter in the appropriate blank.
1. Which of the following terms is used to identify the expense recognition for intangible
allocation. 2. Carrie Company uses the allowance method to account for bad debts. An account that
had been previously written-off as uncollectible was recovered. How would the recovery
affect the company's accounting equation?
Increase assets and increase equity.
Increase assets and decrease liabilities.
Reduce liabilities and increase equity.
Have no effect on assets, liabilities or equity. 3. Allowance for Doubtful Accounts is listed on the balance sheet under the caption:
current assets 4. The main purpose of recording depreciation is to
allocate the cost of a tangible asset to the periods in which its use
contributes to earnings revenue.
estimate the remaining useful life of the asset.
report the asset on the balance sheet at the estimated amount for which the
asset could be sold on the balance sheet date.
give the bookkeeper something to do. 5. On January 1, 2015 the Accounts Receivable and the Allowance for Doubtful Accounts
carried balances of $30,000 and $500, respectively. During the year the company
reported $70,000 of credit sales. There were $550 of receivables written-off as
uncollectible in 2015. Cash collections of receivables amounted to $74,550. The
company estimates that it will be unable to collect one percent (1%) of credit sales. The
amount of bad debts expense recognized in the 2015 income statement will be:
$550. Acc 501 Final Exam Fall 2016 6. Which of the following statements is true with regard to depreciation expense?
A company should use the depreciation method that best matches expense
recognition with the use of the asset.
A company using straight line will show a smaller book value for assets
than if the same company uses double declining balance.
Choosing double declining balance over straight line will produce a
greater total depreciation expense over the asset's life.
Different companies in the same industry will always depreciate similar
assets by the same methods. 7. The term "double taxation" refers to which of the following:
A sole proprietorship must pay income taxes on its net income and the
owner is also required to pay income taxes on withdrawals.
In a partnership, both partners are required to claim their share of net
income on their tax returns.
Corporations must pay income taxes on their net income, and their
stockholders must pay income taxes on their dividends.
A sole proprietorship must pay income taxes to both the state government
and the federal government. 8. A 90-day, 12% note for $10,000, dated May 1, is received from a customer on account.
The maturity value of the note is:
$9,550 9. The term "Retained Earnings" is best explained by which of the following statements?
Money set aside for the redemption of bonds.
A measure of capital generated through operating activities.
Cash retained in a separate bank account designated for emergency uses.
The difference between total revenue and total expenses in an accounting
period. 10. Which of the following cash flows would be included in the financing activities
section of the statement of cash flows?
Cash receipts from dividends.
Cash paid to purchase equipment.
Cash received from a bond issue.
Cash gains and losses from the sale of operational assets. 11. If a bond is sold at 98, its stated rate of interest would be:
equal to the market rate.
unrelated to the market rate.
higher than the market rate.
lower than the market rate. Acc 501 Final Exam Fall 2016 12. ACC 501 has made me love accounting.
False 13. On January 1, 2017, the Accounts Receivable balance was $9,000 and the balance in the
Allowance for Doubtful Accounts was $700. On January 15, 2017 a $200 uncollectible
account was written-off. The net realizable value of accounts receivable immediately
after the write-off is:
$9,200. 14. Which of the following would NOT be presented in the financing section of the
statement of cash flows?
Purchased a new office building.
Purchased treasury stock.
Installment payment on long-term bonds payable.
Issuing of preferred stock. 15 Which of the following is not normally a preference given to the holders of preferred
the right to vote before the common stockholders at the corporation's
the right to receive a specified amount of dividends prior any being paid to
the right to receive preference over common stockholders as to the
distribution of assets during a liquidation process.
All of these are preferences given to preferred stock. 16. A company that uses the allowance method to account for bad debts
Reports the net realizable value of its accounts receivable on the balance
Does not record bad debts until the amount becomes significant.
Records Bad Debts Expense when a receivable is written off.
None of these. 17. Which of the following transactions affects cash flows?
A write-off of an uncollectible account
Issuance of a stock dividend
Payment of dividends declared in a previous year
Recognition of depreciation expense Acc 501 Final Exam Fall 2016 18. Which of the following accounts appear in the liability section of the balance
Warranties payable, discounts on notes payable, accounts payable.
Accounts payable, notes payable, allowance for doubtful accounts.
Notes payable, discounts on notes payable, credit card receivables.
Accounts payable, allowance for doubtful accounts, warranties payable. 19. On March 1, Squire Company purchased a new stamping machine with a list price
of $24,000. The company paid cash for the machine; therefore, it was allowed a 3%
discount. Other costs associated with the machine were: transportation costs, $550; sales
tax paid, $1,680; installation costs, $450; routine maintenance during the first month of
operation, $500. The cost recorded for the machine was:
$26,680. 20. Long Co. paid $175,000 for a purchase that included land, building, and office
furniture. An appraiser provided the following estimates of the market values of the assets
if they had been purchased separately: Land, $20,000, Building, $150,000, and Office
Furniture, $30,000. Based on this information the cost that would be allocated to the land
$26,250. 21. On January 1, 2015 Daugherty Company purchased a truck that cost $34,000. The
truck had an expected useful life of 5 years and a $4,000 salvage value. Based on
this information alone:
The amount of depreciation expense recognized in 2018 would be greater
if Daugherty depreciates the asset under the straight-line method than if
the double declining balance method is used.
The total amount of depreciation expense recognized over the five year
useful life will be greater under the double declining balance method than
the straight-line method.
At the end of 2018, the amount in accumulated depreciation account will
be less if the double declining balance method is used than it would be if
the straight-line method is used.
None of these statements is true. 22. Which of the following assets are considered to have indefinite useful lives?
All of these Acc 501 Final Exam Fall 2016 23. March Company issued at 97 bonds with a face value of $500,000. As a result of
Assets and liabilities would both increase by $500,000.
Assets would increase by $485,000 and liabilities would increase by
Assets and liabilities would both increase by $485,000.
Assets would increase by $500,000, and liabilities would increase by
$485,000. 24. Issuing bonds payable when the market interest rate is less than the stated interest
raises the effective interest rate above the stated rate of interest.
results in bonds being issued at less than their face value.
results in bonds being issued at a premium.
B and C. 25. On January 1, 2015, The Harrigan Corporation issued $35,250 of 8%, 5-year
bonds at 97. The interest payments are due on December 31 each year. Based on the
above, how much interest expense will Harrigan report on its income statement on
December 31, 2015? Round up to the nearest dollar.
$3,032 Acc 501 Final Exam Fall 2016 Section II - Problems (75 points total)
Problem 1: Bad Debts Expense (15 Points)
The following information is available for K.M.R. Company, which uses the allowance method
of accounting for bad debts.
Accounts receivable balance, 1/1/15
Allowance for Doubtful Accounts, 1/1/15
Sales on account, 2015
Collection on accounts receivable, 2015 $77,000
224,900 K.M.R. estimated that 2% of sales on account will be uncollectible. After several attempts at
collection, K.M.R. wrote off an account of $400 that could not be collected.
Prepare horizontal analysis entries for the following events:
(1) 2015 sales
(2) 2015 collections on account
(3) Write-off of the uncollectible account
(4) Bad debt expense for 2015
Rec. All for
DA = Liab +
Earn. Rev. ? Exp. = Net
Bonus (1 point extra credit):
Show how would accounts receivable and the allowance for doubtful accounts (including correct
balances) would appear on the balance sheet. Acc 501 Final Exam Fall 2016 Problem 2: Property, Plant and Equipment (20 points)
James Co purchases a new machine on January 1, 2015 for $625,000. James paid $5,000 to have
the machine transported to the factory and $19,000 for training of staff that will operate the
machine. The machine has an estimated life of 20 years and 200,000 units of output, and
residual value of $10,000. Assume that the fiscal year-end is December 31.
Part 1) Calculate the depreciation for 2015 and 2016 using each of the following methods:
the straight-line method,
the units-of-output method, assuming that output for the first year was 17,500
units and output for the second year was 12,500 units,
the declining-balance method.
Bonus (1 point extra credit) Assume the double declining method of deprecation was used.
How would James Company report the machine and accumulated depreciation on the December
21, 2016 balance sheet? Acc 501 Final Exam Fall 2016 Problem 3: Stockholders? Equity (20 Points)
Lindsay Co. was organized to operate as a car dealership. The charter authorized the following
capital stock: common stock, par value $2 per share. During the first year of operations, the
following transactions were completed.
Jan. 5 Sold and issued 10,000 shares of common stock for $20 per share. June 12 Purchased 1,000 shares of treasury stock at $25 per share. Oct. 1 Declared cash dividends of $5,000 Oct. 17 Sold 100 shares of treasury stock at $30 per share Nov. 1 Recorded the names of shareholders to receive dividend declared Oct. 1 Nov. 15 Paid cash dividends declared on Oct 1. Required
Use horizontal analysis to record the above transactions.
Assets = Liab
Cash D/P + Stockholders? Equity + C. Stock + PIC. CS + PIC. TS + Ret. Ear. - Treas.
Stock Acc 501 Final Exam Fall 2016 Problem 4: Statement of Cash Flows (20 Points)
Duncan Corp. prepares its statement of cash flows using the INDIRECT METHOD.
Indicate where the cash flow effect for each transaction or event would be classified on the
company's statement of cash flows using the following answer choices:
A. Operating activities--ADD to net income
B. Operating activities--DEDUCT from net income
C. Investing activities
D. Financing activities
_____ Depreciation expense was recorded. _____ Land was purchased for cash. _____ Bonds were issued for cash. _____ Accounts receivable increased during the year. _____ Common stock was reacquired as treasury stock. _____ Accounts payable increased during the year. _____ A building was sold for cash. _____ Investments were sold for cash, including a gain (see the next item for the gain). _____ A gain on the sale of investments (see previous item) was recorded and included
in net income. _____ A cash dividend was paid.
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