()

1 MULTIPLE CHOICE 40%

1. The interest rate specified on any note is
for a

7. The

depreciation

method

that

applies

constant percentage to depreciable cost in

calculating depreciation is

A) day.

A) straight-line.

B) month.

B) units-of-activity.

C) week.

C) declining-balance.

D) year.

D) none of these.

2. The interest on a $8,000, 6%, 60-day note

8. The book value of a plant asset is the

receivable is
A) $240.
B) $40.
C) $80.
D) $120.
3. During 2008, Carbondale Inc. had sales on
account of $130,000, cash sales of $54,000,
and collections on account of $80,000. In
addition, they collected $1,450 which had

difference between the

A) replacement

cost

of

the

asset

asset

and

the

and

its

historical cost.
B) cost

of

the

amount

of

depreciation expense for the year.

C) cost

of

the

asset

and

the

accumulated

depreciation to date.
D) proceeds received from the sale of the asset
and its original cost.

been written off as uncollectible in 2007.

9. Depreciation is a process of

As a result of these transactions, the

A) asset devaluation.

change in the accounts receivable balance

B) cost accumulation.

indicates a

C) cost allocation.

A) $100,550 increase.

D) asset valuation.

B) $48,000 increase.

10. The declining-balance method of depreciation

C) $50,000 increase.
D) $102,000 increase.
4. ABC Company accepted a national credit card
for a $3,000 purchase. The cost of the goods
sold is $2,400. The credit card company

produces
A) a decreasing depreciation expense each
period.
B) an increasing depreciation expense each
period.

charges a 2% fee. What is the impact of this

C) a declining percentage rate each period.

transaction on net operating income?

D) a constant amount of depreciation expense

A) Increase by $540
B) Increase by $600
C) Increase by $510

each period.
11. The entry to record patent amortization
usually includes a credit to

D) Increase by $910

A) Amortization Expense.

5. Three accounting issues associated with

B) Accumulated Amortization.

accounts receivable are

C) Accumulated Depreciation.

A) depreciating, returns, and valuing.

D) Patents.

B) depreciating, valuing, and collecting.

12. Gains on an exchange of plant assets that

C) recognizing, valuing, and disposing.

D) accrual, bad debts, and disposing.
6. All of the following factors in computing
depreciation are estimates except

has commercial substance are

A) deducted from the cost of the new asset
acquired.
B) deferred.

A) cost.

C) not possible.

B) residual value.

D) recognized immediately.

C) salvage value.

13. The current portion of long-term debt should

D) useful life.

A) be paid immediately.
B) be reclassified as a current liability.
C) be classified as a long-term liability.

D) not be separated from the long-term portion

of debt.

A) first to creditors and the remainder to

partners.
B) to the partners on the basis of

14.The accounting for warranty costs is based

on

their

capital balances.
C) to the partners on the basis of

A) going concern principle.

their

income-sharing ratio.

B) matching principle.

D) only after all creditors have been paid.

C) conservatism principle.

Problems 60%

D) objectivity principle.

1. Kiley Company had a $500 credit balance in

15. Claims for which formal instruments of

credit are issued as proof of the debt are

Allowance for Doubtful Accounts at December

31, 2008, before the current year's

A) accounts receivable.

provision for uncollectible accounts. An

B) interest receivable.

aging of the accounts receivable revealed

C) notes receivable.

the following:

D) other receivables.
16.

The

existing

Estimated Percentage

balance

in

Allowance

for

Uncollectible

Doubtful Accounts is considered in computing

Current Accounts

$120,000

1%

bad debts expense in the

130 days past due

12,000

2%

A) direct write-off method.

3160 days past due

10,000

6%

B) percentage of receivables basis.

6190 days past due

5,000

10%

C) percentage of sales basis.

Over 90 days past due

8,000

30%

D) percentage of receivables and percentage of

Total Accounts

sales basis.

$155,000

Receivable

17. The percentage of receivables basis for

estimating uncollectible accounts emphasizes
A) cash realizable value.

Instructions: 9%
(a) Prepare the adjusting entry on December 31,
2008, to recognize bad debts expense.

B) the relationship between accounts receivable

and bad debts expense.

(b) Assume the same facts as above except that

the Allowance for Doubtful Accounts account

C) income statement relationships.

had a $800 debit balance before the current

D) the relationship between sales and accounts

year's provision for uncollectible accounts.

receivable.

Prepare the adjusting entry for the current

18 .The maturity value of a $90,000, 10%, 120day note receivable

is

year's provision for uncollectible accounts.

(c) Assume that the company has a policy of

A) $90,000.

providing for bad debts at the rate of 1% of

B) $99,000.

sales, that sales for 2008 were $600,000,

C) $93,000.

and that Allowance for Doubtful Accounts had

D) $91,500.

a $650 credit balance before adjustment.

19.In

the

final

step

of

the

liquidation

process, remaining cash is distributed to

Prepare the adjusting entry for the current

year's provision for bad debts.

partners
A) on an equal basis.

2. Listed below are two independent situations

B) on the basis of the income ratios.

C)

on

the

basis

of

the

remaining

capital

balances.
D) regardless of capital deficiencies.
20.In the liquidation of a partnership, any
gain or loss on the realization of noncash
assets should be allocated

involving the disposition of receivables.

(a)Dylan

Company

sells

$500,000

of

its

receivables to Speedy Factors, Inc. Speedy

Factors assesses a finance charge of 2% of
the amount of receivables sold.
Instructions:

Prepare the journal entry to

record the sale of the receivables on Dylan

Company's books. 3%
(b) A restaurant is the site for a large
company party. The bill totals $3,000 and is
charged by the patron on a Visa credit card.
3%
Instructions:

Assume

3%

service

fee

is

charged by Visa. Record the entry for the

transaction on the restaurant's books.
3.

Tanner Company purchased equipment on

January 1, 2007 for $60,000. It is estimated
that the equipment will have a $5,000
salvage value at the end of its 5-year

4. Tom Byers sells televisions with a 2-year

warranty. Past experience indicates that 2%
of the units sold will be returned during
the warranty period for repairs. The average
cost of repairs under warranty is estimated
to be $60 per unit. During 2008, 8,000 units
were sold at an average price of $400.
During the year, repairs were made on 55
units at a cost of $2,000.
Instructions: 6%
Prepare journal entries to record the repairs

useful life. It is also estimated that the

made under warranty and estimated warranty

equipment will produce 100,000 units over

expense for the year.

its 5-year life.

5. Farr Delivery Company and Bell Delivery

Instructions: 9%

Company exchanged delivery trucks on January

Answer the following independent questions.

1, 2008. Farr's truck cost $80,000, had

(a) Compute the amount of depreciation expense

accumulated depreciation of $60,000, and has

for the year ended December 31, 2007, using

a fair market value of $19,000. Bell's truck

the straight-line method of depreciation.

cost $60,000, had accumulated depreciation

(b)If 16,000 units of product are produced in

2007 and 24,000 units are produced in 2008,
what is the book value of the equipment at
December 31, 2008? The company uses the
units-of-activity depreciation method.
(c)If the company uses the double-decliningbalance method of depreciation, what is the
balance of the Accumulated Depreciation
Equipment account at December 31, 2009?

of $50,000, and has a fair market value of

$19,000.(assume the exchange of delivery
trucks that has commercial substance)
Instructions: Journalize the exchange for Farr
Delivery Company.5%
6. Presented below are selected transactions
for Milton Company for 2008.
(a) Jan. 1

Received $9,000 scrap value on

retirement of machinery that was purchased

on January 1, 1998. The machine cost $90,000
on that date, and had a useful life of 10
years with no salvage value.
(b) April 30

Sold a machine for $28,000 that

was purchased on January 1, 2005. The

machine cost $75,000, and had a useful life
of 5 years with no salvage value.
(c) Dec. 31

Discarded a business automobile

that was purchased on October 1, 2004. The

car cost $32,000 and was depreciated on a 5year useful life with a salvage value of
$2,000.
Instructions: 15%
Journalize all entries required as a result of
the above transactions. Milton Company uses
the straight-line method of depreciation and
has recorded depreciation through December
31, 2007.

(a)
7. The Smith and Wilson partnership reports net
income of $60,000. Partner salary allowances
are Smith $18,000 and Wilson $12,000. Any
remaining income is shared 60:40.

(b)

Instructions: 4%
Determine the amount of net income allocated
to each partner.
3. (9%)
8. Prior to the distribution of cash to the

(a)

partners, the accounts of ABC Company are:

Cash $30,000, Alt Capital (Dr.) $10,000,
Bell Capital (Cr.) $25,000, and Cole Capital

(b)

(Cr.) $15,000. They share income on a 6:2:2

basis.
Instructions: 6%
Prepare entries to record (a) the absorption

(c)

of Alt's capital deficiency by the other

partners and (b) the distribution of cash to
the partners with credit balances.
4. (6%)
(a)

(b)

()
MULTIPLE CHOICE 40%
1.

5.

6.

10.

11.

15.

16.

20.

2 Problems 60%
1. (9%)
(a)

(b)

(c)

2.(6%)

5.(5%)

6. (15%)
(a)

(b)

(c)

7.(4%)

8.(6%)
(a)

(b)