Multiple Choice Answers

1. A patent has amortization this year of $2,300. The journal entry would be
A. debit Accumulated Amortization— Patent, $2,300; credit Amortization Expense— Patent, $2,300.
B. debit Accumulated Amortization— Patent, $2,300; credit Patent, $2,300.
C. debit Amortization Expense— Patent, $2,300; credit Accumulated Depreciation— Patent, $2,300.
D. debit Amortization Expense—Patent, $2,300; credit Patent, $2,300.

2. Which of the following would not be considered a contingent liability?
A. Potential fines from the EPA
B. Cosigning a loan
C. Pending legal action
D. Mortgage payable

3. Using a 360-day year, the maturity value of a 69-day note for $1,500 at 7% annual interest is (rounded
to the nearest cent)
A. $20.13
B. $1,520.13
C. $1, 584, 88
D. $1,605.00

4. Brandon Company completed an aging of its accounts receivable and came up with an estimated amount of $6,342. The credit sales for the period are $85,000. The balance in the allowance for doubtful accounts is a debit of $817. If Brandon uses 5% of credit sales as its estimating uncollectable accounts, how much will the credit be to the allowance for doubtful accounts if Brandon uses the estimate of aging receivables as its method of estimating uncollectable accounts?
A. $5,067
B. $4,250
C. $5,525
D. $7,159

5. Which of the following would indicate poor internal control over accounts receivable?
A. The mailroom employees open the mail and give the cash receipts to another employee.
B. The same person handling cash receipts also records the accounts receivable transactions.
C. The person who handles accounts receivable wouldn’t write off accounts as uncollectable.
D. The person handling cash receipts passes the receipts to someone who enters them into accounts receivable.

6. By not accruing warranty expense,
A. reported liabilities will be overstated, and net income will be understated.
B. reported expenses will be understated, and net income will be understated.
C. reported expenses will be overstated, and reported liabilities will be understated.
D. reported liabilities will be understated, and net income will be overstated.

7. Cash equivalents are
A. not liquid and carry high risk.
B. very liquid and carry little risk.
C. not liquid and carry little risk.
D. very liquid and carry high risk.

8. Which of the following would not be a liability according to FASB’s definition of a liability?
A. A note payable with no specified maturity date
B. The signing of a three-year employment contract at a fixed annual salary
C. An obligation to provide goods or services in the future
D. An obligation that’s estimated in amount

9. Which of the following is not a benefit to extending credit to customers?
A. Increased revenues
B. Bad-debt expenses
C. Wider range of customers
D. Increased profits

10. A warranty is an example of a/an _______ liability.
A. settled
B. estimated
C. known
D. contingent

11. Taylor Company has given you the following information from its aging of accounts receivable. The
current amount in the allowance for doubtful accounts is a $958 credit.
Using this information, what is the amount of the journal entry to record the allowance for doubtful accounts?
Current $24,400 2% uncollectible
31–60 days 7,350 8% uncollectible
61–90 days 3,380 15% uncollectible
91 and up 1,220 30% uncollectible
Using this information, what is the amount of the journal entry to record the allowance for doubtful
accounts?
A. $541
B. $991
C. $2,457
D. $1,949

12. A company purchased furniture on January 1, 2012. Its cost was $15,600, and it had a residual value
of $1,600. Its useful life is determined to be three years. Using double-declining balance depreciation, the depreciation for 2012 to the nearest dollar will be
A. $9,333.
B. $5,200.
C. $10,400.
D. $4,667.

13. If a $6,000, 10%, 10-year bond was issued at 104 on October 1, 2011, how much interest will accrue
on December 31 if interest payments are made annually?
A. None
B. $104
C. $500
D. $150

14. Casey Company’s bank statement shows a bank balance of $43,267. The statement shows a bank
service charge of $50 and a bank collection of $760 in Casey Company’s behalf. Casey’s book balance
should be adjusted by a total of
A. +$760.
B. +$810.
C. +$710.
D. –$710.

15. Rick Company has cash of $143,000; net accounts receivable of $89,000; short-term investments of
$35,000; and prepaid expenses of $40,000. It also has $50,000 in current liabilities and $80,000 in longterm  liabilities. The quick ratio for Rick Company is
A. 3.34.
B. 6.14.
C. 5.34.
D. 4.64.

16. Ryan Corporation made a basket purchase of three items. Item A was appraised at $35,000; item B was appraised at $55,000; and item C was appraised at $60,000. The purchase price was $125,000. The  amount at which item B should be recorded is
A. ($55,000/$125,000) × $150,000.
B. ($55,000/$150,000) × $125,000.
C. ($($55,000/$95,000) × $125,000.
D. ($55,000/$95,000) × $150,000.

17. Which of the following would be considered a contingent liability?
End of exam
A. Accounts payable obligation
B. Sales tax obligation
C. Pending legal action
D. Mortgage obligation
18. Which of the following marketable securities are reported at market value on the balance sheet date?
A. Available-for-sale and trading securities
B. Trading securities
C. Held-to-maturities securities
D. Available-for-sale securities

19. Research and development costs (R&D) are generally
A. listed as “long-term assets” on the balance sheet.
B. expensed and become part of the income statement.
C. listed as “current assets” on the balance sheet.
D. listed as “other intangibles” on the balance sheet.

20. Jewell Company has current assets of $56,000; long-term assets of $135,000; current liabilities of $44,000; and long-term liabilities of $90,000. Jewell Company’s debt ratio is
A. 239.3%.
B. 127.3%.
C. 70.2%.
D. 78.6%.