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Accounting Test 3

93 Questions
Accounting Quizzes & Trivia

Texas State

Questions and Answers
  • 1. 
    Recievables are frequently classified as:
    • A. 

      Accounts receivable, company receivables, and other receivables

    • B. 

      Accounts receivable and general receivables

    • C. 

      Accounts receivable, notes receivable, and other receivables

    • D. 

      Accounts receivable, notes receivable, and employee recievables

  • 2. 
    Which of the following approaches for bad debts is best described as a balance sheet method?
    • A. 

      Direct write-off method

    • B. 

      Both percentage-of-receivables basis and direct write-off method

    • C. 

      Percentage-of-sales basis

    • D. 

      Percentage-of-recievables basis

  • 3. 
    One of the following statements about promissory notes is incorrect. The incorrect statement is:
    • A. 

      A promissory note is not a negotiable instrument

    • B. 

      The party making the promise to pay is called the maker

    • C. 

      A promissory note is often required from high-risk customers

    • D. 

      The party to whom payment is to be made is called the payee

  • 4. 
    Which of the following statements about Visa credit card sales is incorrect?
    • A. 

      Two parties are involved

    • B. 

      The retailer recieves cash more quickly than it would from individual customers on account

    • C. 

      The retailer is not involved in the collection process

    • D. 

      The credit card issuer makes the credit investigation of the customer

  • 5. 
    Accounts and notes recievable are reported in the current assets section of the balance sheet at:
    • A. 

      Cash (net) realizable value

    • B. 

      Invoice cost

    • C. 

      Net book value

    • D. 

      Lower-of-cost-or-market value

  • 6. 
    Notes and accounts receivable that result from sales transactions are often called trade receivables.
    • A. 

      True

    • B. 

      False

  • 7. 
    • A. 

      True

    • B. 

      False

  • 8. 
    Cash (net) realizable value is the net amount the company expects to recieve in cash.
    • A. 

      True

    • B. 

      False

  • 9. 
    The percentage-of-receivable basis results in a better matching of expenses with revenues than the percentage-of-sales basis.
    • A. 

      True

    • B. 

      False

  • 10. 
    Under the percentage-of-receivables basis, the amount of bad debt expense is the difference between the required balance in the allowance account.
    • A. 

      True

    • B. 

      False

  • 11. 
    Retailers consider sales from the use of bank credit cards as credit sales.
    • A. 

      True

    • B. 

      False

  • 12. 
    In a promissory note, the party making the promise to pay is called the maker.
    • A. 

      True

    • B. 

      False

  • 13. 
    To determine the maturity date of a note, you need to include the date the note is issued but omit the due date.
    • A. 

      True

    • B. 

      False

  • 14. 
    Companies report short-term notes receivable at their cash (net) realizable value.
    • A. 

      True

    • B. 

      False

  • 15. 
    A dishonored note receivable is no longer negotiable and the payee has no claim against the maker of the note.
    • A. 

      True

    • B. 

      False

  • 16. 
    Accounting issues associated with accounts receivable include all of the following except:
    • A. 

      Analyzing accounts receivable

    • B. 

      Recognizing accounts receivable

    • C. 

      Disposing of accounts receivable

    • D. 

      Valuing accounts receivable

  • 17. 
    Allowance for Doubtful Account is:
    • A. 

      Closed at the end of the fiscal year

    • B. 

      An operating expense

    • C. 

      A contra asset account

    • D. 

      Added to Accounts Receivable on the balance sheet

  • 18. 
    Under the allowance method, estimated uncollectible receivables are credited to:
    • A. 

      Accounts Receivable

    • B. 

      Allowance for Doubtful Accounts

    • C. 

      Uncollectible Accounts Expense

    • D. 

      Bad Debts Expense

  • 19. 
    Writing off an uncollectible account under the allowance method requires a debit to:
    • A. 

      Accounts Receivable

    • B. 

      Bad Debts Expense

    • C. 

      Allowance for Doubtful Accounts

    • D. 

      Uncollectible Accounts Expense

  • 20. 
    The percentage-of-sales basis of estimating uncollectibles:
    • A. 

      Emphasizes balance sheet relationships

    • B. 

      Considers the existing balance in Allowance for Doubtful Accounts

    • C. 

      Results in a better matching of expenses with revenues

    • D. 

      Produces a better estimate of cash realizable value

  • 21. 
    The percentage-of-receivables basis of estimating uncollectibles:
    • A. 

      Emphasizes income statement relationships

    • B. 

      Produces a better estimate of cash realizable value

    • C. 

      Results in a better matching of expenses with revenues

    • D. 

      Ignores the existing balance in Allowance for Doubtful Accounts

  • 22. 
    The direct write-off method:
    • A. 

      Shows only actual losses from uncollectible accounts

    • B. 

      Is acceptable for financial reporting purposes

    • C. 

      Estimate bad debt losses

    • D. 

      Debits Allowance for Doubtful Accounts to record write-offs of accounts

  • 23. 
    In recording the sale of accounts receivalbe, the commission charged by a factor is recorded as:
    • A. 

      Loss on Sale of Receivables

    • B. 

      Service Charge Expense

    • C. 

      Bad Debts Expense

    • D. 

      Commission Expense

  • 24. 
    Sales resulting from the use of Visa and MasterCard credit cards are considered:
    • A. 

      Card sales

    • B. 

      Credit card sales

    • C. 

      Cash sales

    • D. 

      Credit sales

  • 25. 
    The maturity date of a 60-day note dated April 12 is:
    • A. 

      June 13

    • B. 

      June 11

    • C. 

      June 12

    • D. 

      June 10

  • 26. 
    The interest rate specified in a note is for a:
    • A. 

      Day

    • B. 

      Year

    • C. 

      Month

    • D. 

      Week

  • 27. 
    For an interest-bearing note, the amount due at maturity is the:
    • A. 

      Face value of the note plus interest

    • B. 

      Cash (net) realizable value

    • C. 

      Maturity value plus interest

    • D. 

      Face value of the note

  • 28. 
    The entry to record the dishonor of a note receivable assuming the payee expects eventual collection includes a debit to:
    • A. 

      Allowance for Doubtful Accounts

    • B. 

      Accounts Receivable

    • C. 

      Notes Receivable

    • D. 

      Cash

  • 29. 
    The accounts receivable turnover ratio is computed by dividing:
    • A. 

      Net credit sales by ending net accounts receivable

    • B. 

      Total sales by ending net accounts receivable

    • C. 

      Total sales by average net accounts receivable

    • D. 

      Net credit sales by average net accounts receivable

  • 30. 
    The average collection period in terms of days is calculated:
    • A. 

      By dividing 365 into the turnover ratio

    • B. 

      By dividing the turnover ratio by 365

    • C. 

      By dividing the turnover ratio into 365 days

    • D. 

      Without regard to the allowance for doubtful accounts

  • 31. 
    Depreciation is a process of:
    • A. 

      Cost allocation

    • B. 

      Cash accumulation

    • C. 

      Appraisal

    • D. 

      Valuation

  • 32. 
    When there is a change in estimated depreciation:
    • A. 

      Previous depreciation should be corrected

    • B. 

      Current and future years depreciation should be revised

    • C. 

      Only future years depreciation should be revised

    • D. 

      None of the above

  • 33. 
    Additions to plant assets are:
    • A. 

      Debited to a Repair Expense account

    • B. 

      Revenue expenditures

    • C. 

      Debited to a Purchase account

    • D. 

      Capital expenditures

  • 34. 
    Which of the following statements is false?
    • A. 

      The amortization period of an intangible asset can exceed 20 years

    • B. 

      Goodwill is recorded only when a business is purchased

    • C. 

      If an intangible asset has a finite life, it should be amortized

    • D. 

      Research and development costs are expensed when incurred, except when the research and developement expenditures result in a successful patent.

  • 35. 
    Indicate which of the following statements is true.
    • A. 

      Totals of major classes of assets can be shown in the balance sheet, with asset details disclosed in the note to the financial statements.

    • B. 

      Intangible assets are typically combined with plant assets and natural resources and shown in the property, plant, and equipment section.

    • C. 

      Since intangible assets lack physical substance, they need be disclosed only in the notes to the financial statements.

    • D. 

      Goodwill should be reported as a contra-account in the owner's equity section.

  • 36. 
    In exchange of assets in which the exchange has commercial substance:
    • A. 

      Gains, but not losses, are recognized immediately

    • B. 

      Losses, but not gains, are recognized immediately

    • C. 

      Neither gains nor losses are recognized immediately

    • D. 

      Both gains and losses are recognized immediately

  • 37. 
    The cost of land includes closing costs such as title and attorney's fees.
    • A. 

      True

    • B. 

      False

  • 38. 
    The cost of equipment consists of the cash purchase price, freight charges, motor vehicle licenses and accident insurance on company vehicle.
    • A. 

      True

    • B. 

      False

  • 39. 
    Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset.
    • A. 

      True

    • B. 

      False

  • 40. 
    The units-of-activity method can be used for airplanes, buildings, and furniture.
    • A. 

      True

    • B. 

      False

  • 41. 
    The declining-balance method is considered an accelerated-depreciation method.
    • A. 

      True

    • B. 

      False

  • 42. 
    The Internal Revenue Service (IRS) requires the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements.
    • A. 

      True

    • B. 

      False

  • 43. 
    To determine the revised depreciation expense, the company computes the asset's depreciable cost at the time of the revision and divides it by the asset's remaining useful life.
    • A. 

      True

    • B. 

      False

  • 44. 
    Companies generally use the units-of-activity method to compute depletion.
    • A. 

      True

    • B. 

      False

  • 45. 
    Goodwill is the excess of cost over the fair market value of the net assets acquired.
    • A. 

      True

    • B. 

      False

  • 46. 
    The gain or loss on exchange of plant assets is the differance between the fair market value and the cost of the asset given up.
    • A. 

      True

    • B. 

      False

  • 47. 
    Plant assets decline in service potential over their useful lives except for:
    • A. 

      Land

    • B. 

      Equipment

    • C. 

      Land improvements

    • D. 

      Buildings

  • 48. 
    The cost of land includes all of the following except:
    • A. 

      Accrued property taxes

    • B. 

      Parking lots

    • C. 

      Real estate brokers commissions

    • D. 

      Closing costs

  • 49. 
    Factors that affect the computation of depreciation include all of the following except:
    • A. 

      Useful life

    • B. 

      Salvage value

    • C. 

      Current market value

    • D. 

      Cost

  • 50. 
    Depreciable cost is the:
    • A. 

      Book value of an asset

    • B. 

      Book value of an asset less its salvage value

    • C. 

      Cost of an asset less its salvage value

    • D. 

      Cost of an asset less accumulated depreciation

  • 51. 
    The depreciation method that produces a decreasing annual depreciation expense over an asset's useful life is the:
    • A. 

      Straight-line method

    • B. 

      Units-of-activity method

    • C. 

      Declining-balance method

    • D. 

      None of these options

  • 52. 
    The method that ignores salvage value in determining the amount of depreciation is the:
    • A. 

      Straight-line method

    • B. 

      Units-of-activity method

    • C. 

      Declining-balance method

    • D. 

      None of these options

  • 53. 
    When a change in estimated useful life is required, the company makes the change in:
    • A. 

      Current and prior years

    • B. 

      Current year only

    • C. 

      Current and future years

    • D. 

      Prior years only

  • 54. 
    Ordinary repairs expenditures to maintain the operating efficiency of a plant asset and are referred to as:
    • A. 

      Improvements

    • B. 

      Expense expenditures

    • C. 

      Revenue expenditures

    • D. 

      Capital expenditures

  • 55. 
    A gain on sale of a plant asset occurs when the proceeds of the sale exceed the:
    • A. 

      Book value of the asset sold

    • B. 

      Accumulated depreciation on the asset sold

    • C. 

      Market value of the asset sold

    • D. 

      Salvage value of the asset sold

  • 56. 
    Natural resources include all of the following except:
    • A. 

      Land improvements

    • B. 

      Oil and gas deposits

    • C. 

      Mineral deposits

    • D. 

      Standing timber

  • 57. 
    Companies amortize the cost of a patent over its:
    • A. 

      Legal life or its useful life, whichever is shorter

    • B. 

      Useful life

    • C. 

      Legal life

    • D. 

      Legal life or its useful life, whichever is longer

  • 58. 
    All of the following are intangible assets except:
    • A. 

      Research and development costs

    • B. 

      Copyrights

    • C. 

      Goodwill

    • D. 

      Patents

  • 59. 
    The asset turnover ratio is computed by dividing:
    • A. 

      Net sales by ending total assets

    • B. 

      Net income by ending total assets

    • C. 

      Net income by average total assets

    • D. 

      Net sales by average total assets

  • 60. 
    In exchanges of plant assets that have commercial substance:
    • A. 

      Losses are recognized but not gains

    • B. 

      Neither gains nor losses are recognized

    • C. 

      Both gains and losses are recognized

    • D. 

      Gains are recognized but not losses

  • 61. 
    In an exchange of plant assets that has commercial substance, a gain on disposal is:
    • A. 

      Recognized immediately

    • B. 

      Ignored completely

    • C. 

      Offset against the cost of the old asset

    • D. 

      Deducted from the cost of the new asset

  • 62. 
    The time period for classifying a liablility as current is one year or the operating cycle, whichever is:
    • A. 

      Longer

    • B. 

      Possible

    • C. 

      Shorter

    • D. 

      Probable

  • 63. 
    To be classified as a current liability, a debt must be expected to be paid:
    • A. 

      Out of existing current assets

    • B. 

      By creating other current liabilities

    • C. 

      Within 2 years

    • D. 

      Both (a) and (b)

  • 64. 
    Employer payroll taxes do not include:
    • A. 

      FICA taxes

    • B. 

      Federal unemployment taxes

    • C. 

      State unemployment taxes

    • D. 

      Federal income taxes

  • 65. 
    The term used for bonds that are unsecured is:
    • A. 

      Callable bonds

    • B. 

      Bearer bonds

    • C. 

      Indenture

    • D. 

      Debenture bonds

  • 66. 
    Karson Inc. issues 10-year bonds with a maturity value of $200,000. If the bonds are issued at a premium, this indicates that:
    • A. 

      The market interest rate exceeds the contractual interest rate

    • B. 

      The contractual interest rate and the market interest rate are the same

    • C. 

      The contractual interest rate exceeds the market interest rate

    • D. 

      No relationship exists between the two rates

  • 67. 
    Howard Corporation issued a 20-year mortgage note payable on January 1, 2011. At December 31, 2011, the unpaid principal balance will be reported as:
    • A. 

      Interest payable

    • B. 

      A long-term liability

    • C. 

      A current liability

    • D. 

      Part current and part long-term liability

  • 68. 
    The market price of a bond is dependent on:
    • A. 

      The payments amounts

    • B. 

      The length of time until the amounts are paid

    • C. 

      The interest rate

    • D. 

      All of the above

  • 69. 
    A current liability is a debt that the company reasonably expects to pay from existing current assets or through the creating of other current liabilities within on year or the operating cycle, whichever is longer
    • A. 

      True

    • B. 

      False

  • 70. 
    Notes payable due for payment within one year of the balance sheet date are usually classified as current liabilities.
    • A. 

      True

    • B. 

      False

  • 71. 
    Companies report any balance in an unearned revenue account as a current liability in the balance sheet.
    • A. 

      True

    • B. 

      False

  • 72. 
    Current liabilities are usually listed in the order of maturity on the balance sheet.
    • A. 

      True

    • B. 

      False

  • 73. 
    Solvency refers to the ability to pay maturing obligations and meet unexpected needs for cash.
    • A. 

      True

    • B. 

      False

  • 74. 
    When a company remits sales taxes to the taxing agency, it debits Sales Taxes Expense and credits Cash.
    • A. 

      True

    • B. 

      False

  • 75. 
    Every employer incurs liabilities relating to employees' salaries and wages.
    • A. 

      True

    • B. 

      False

  • 76. 
    Both bond interest and dividends on stock are deductible for tax purposes.
    • A. 

      True

    • B. 

      False

  • 77. 
    Bonds that mature at a single specified future date are referred to as term bonds.
    • A. 

      True

    • B. 

      False

  • 78. 
    Bond interest payable is classified as a long-term liability on the balance sheet.
    • A. 

      True

    • B. 

      False

  • 79. 
    A current liability is a debt the company reasonably expects to pay from existing current assets within:
    • A. 

      One year or the operating cycle, whichever is longer

    • B. 

      The operating cycle

    • C. 

      One year or the operating cycle, whichever is shorter

    • D. 

      One year

  • 80. 
    The amount of sales tax collected by a retailer is recorded as:
    • A. 

      Sales

    • B. 

      Sales taxes revenue

    • C. 

      Sales taxes payable

    • D. 

      Sales taxes expense

  • 81. 
    All of the following are current liabilities except:
    • A. 

      Sales taxes payable

    • B. 

      Unearned rental revenue

    • C. 

      Current maturities of long-term debt

    • D. 

      All of these options are current liabilities

  • 82. 
    Companies report current liabilities on the balance sheet in:
    • A. 

      Random order

    • B. 

      Alphabetical order

    • C. 

      Order of magnitude

    • D. 

      Order of maturity

  • 83. 
    Payroll taxes imposed on the employer include:
    • A. 

      Employees income taxes

    • B. 

      Sales taxes

    • C. 

      FICA taxes

    • D. 

      Property taxes

  • 84. 
    The entry to record the payroll includes a:
    • A. 

      Debit to FICA Taxes Payable

    • B. 

      Credit to FICA Taxes Payable

    • C. 

      Debit to Cash

    • D. 

      Debit to Federal Unemployment Taxes Payable

  • 85. 
    Payroll deductions include all of the following except:
    • A. 

      Unemployment taxes

    • B. 

      FICA taxes

    • C. 

      Federal income taxes

    • D. 

      Health insurance

  • 86. 
    If Unearned Revenue is credited in a journal entry, the debit must have been to the:
    • A. 

      Accounts Payable account

    • B. 

      Cash account

    • C. 

      Bonds Payable account

    • D. 

      Accounts Receivable account

  • 87. 
    The sum of the individual checks the employmees will receive is recorded as:
    • A. 

      FICA Taxes Payable

    • B. 

      State Income Taxes Payable

    • C. 

      Salaries and Wages Expense

    • D. 

      Salaries and Wages Payable

  • 88. 
    Employer payroll taxes include all of the following except:
    • A. 

      Federal income taxes

    • B. 

      Federal unemployment taxes

    • C. 

      State unemployment taxes

    • D. 

      FICA taxes

  • 89. 
    Bonds that mature in installments are referred to as:
    • A. 

      Convertible bonds

    • B. 

      Callable bonds

    • C. 

      Serial bonds

    • D. 

      Term bonds

  • 90. 
    Amortizing a discount on bonds payable serves to:
    • A. 

      Decrease bond interest expense

    • B. 

      Increase bond interest expense

    • C. 

      Decrease the face value of the bonds

    • D. 

      Decrease the carrying value of the bonds

  • 91. 
    When using the effective-interest method of bond discount amortization, bond interest expense:
    • A. 

      Will increase with each succeeding period

    • B. 

      Will remain the same each period

    • C. 

      Will decrease with each succeeding period

    • D. 

      May increase or decrease period

  • 92. 
    When a company retires bonds before maturity, the gain or loss on redemption is the difference between the cash paid and the:
    • A. 

      Carrying value of the bonds

    • B. 

      Face value of the bonds

    • C. 

      Original selling price of the bonds

    • D. 

      Maturity value of the bonds

  • 93. 
    The account Discount on Bonds Payable:
    • A. 

      Has a credit balance

    • B. 

      Is a contra account

    • C. 

      Is added to bonds payable on the balance sheet

    • D. 

      Increases over the term of the bonds