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3. Dell reported net sales of $8,739 million and average accounts receivable of $864 million. Its
accounts receivable turnover is:
A) 0.90.
B) 10.1.
C) 36.1.
D) 50.0.
E) 3,686.
4. A promissory note:
A) Is a short-term investment for the maker.
B) Is a written promise to pay a specified amount of money at a certain date.
C) Is a liability to the payee.
D) Is another name for an installment receivable.
E) Cannot be used in payment of an account receivable.
5. An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the
period of the sales, and (2) reports accounts receivable at the amount of cash to be collected is the:
A) Allowance method of accounting for bad debts.
B) Aging of notes receivable.
C) Adjustment method for uncollectible debts.
D) Direct write-off method of accounting for bad debts.
E) Cash basis method of accounting for bad debts.
7. Electron borrowed $75,000 cash from TechCom by signing a promissory note. TechCom's entry to
record the transaction should include a:
A) Debit to Notes Receivable for $75,000.
B) Debit to Accounts Receivable for $75,000.
C) Credit to Notes Receivable for $75,000.
D) Debit Notes Payable for $75,000.
E) Credit to Sales for $75,000.
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ACCT1A Sample Exam 3
8. A company used the percent of sales method to determine its bad debts expense. At the end of the
current year, the company's unadjusted trial balance reported the following selected amounts:
All sales are made on credit. Based on past experience, the company estimates 0.5% of credit sales to
be uncollectible. What amount should be debited to Bad Debts Expense when the year-end adjusting
entry is prepared?
A) $925
B) $1,225
C) $4,200
D) $4,500
E) $45,000
9. Western Company sold $700,000 of its accounts receivable and was charged a 3% factoring fee. How
should Western Company record this transaction in the journal?
A) Item A
B) Item B
C) Item C
D) Item D
E) Item E
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ACCT1A Sample Exam 3
11. A method of estimating bad debts expense that involves a detailed examination of outstanding
accounts and their length of time past due is the:
A) Direct write-off method.
B) Aging of accounts receivable method.
C) Percentage of sales method.
D) Aging of investments method.
E) Percent of accounts receivable method.
13. Wallah Company agreed to accept $5,000 in cash along with an $8,000, 90-day, 13.5% note from
customer Judith Klemper to settle her $13,000 past-due account. How should Wallah record this
transaction?
A) Item A
B) Item B
C) Item C
D) Item D
E) Item E
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ACCT1A Sample Exam 3
14. On December 31 of the current year, a company's unadjusted trial balance included the following:
Accounts Receivable, debit balance of $97,250; Allowance for Doubtful Accounts, credit balance of
$951. What amount should be debited to Bad Debts Expense, assuming 6% of outstanding accounts
receivable at the end of the current year will be uncollectible?:
A) $ 951.
B) $3,992.
C) $4,884.
D) $5,835.
E) $6,786.
15. A company has net sales of $870,000 and average accounts receivable of $174,000. What is its
accounts receivable turnover for the period?
A) 0.20.
B) 5.00
C) 20.0
D) 73.0
E) 1,825.
16. Acme Company has an agreement with a major credit card company which calls for cash to be
received immediately upon deposit of Acme customers' credit card sales receipts. The credit card
company receives 3.5% of card sales as its fee. If Acme has $2,000 in credit card sales, which of the
following statements are true?
A) Acme debits Cash $2,000.
B) Acme debits Cash $1,930.
C) Acme debits Accounts Receivable--Credit Card Co $2,000.
D) Acme debits Accounts Receivable--Credit Card Co $1,930.
E) Acme credits Sales $1,930
17. If the credit balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad
debt being written off, the entry to record the write-off against the allowance account results in:
A) An increase in the expenses of the current period.
B) A reduction in current assets.
C) A reduction in equity.
D) No effect on the expenses of the current period.
E) A reduction in current liabilities.
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ACCT1A Sample Exam 3
21. The amount due on the maturity date of a $6,000, 60-day 8%, note receivable is:
A) $6,000.
B) $6,480.
C) $5,520.
D) $6,080.
E) $5,920.
22. The buyer who pays cash for an account receivable is called a:
A) Payor.
B) Pledgor.
C) Factor.
D) Payee.
E) Pledgee.
24. A promissory note received from a customer in exchange for an account receivable:
A) Is a cash equivalent for the recipient.
B) Is an account receivable for the recipient.
C) Is a note receivable for the recipient.
D) Is a short-term investment for the recipient.
E) Is a note payable for the recipient.
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ACCT1A Sample Exam 3
25. A company ages its accounts receivables to determine its end of period adjustment for bad debts. At
the end of the current year, management estimated that $39,375 of the accounts receivable balance
would be uncollectible. Prior to any year-end adjustments, the Allowance for Doubtful Accounts had
a credit balance of $3,285. What adjusting entry should the company make at the end of the current
year to record its estimated bad debts expense?
A) Item A
B) Item B
C) Item C
D) Item D
E) Item E
27. Huffington Company traded in an old delivery truck for a new one. The old truck had a cost of
$75,000 and accumulated depreciation of $60,000. The new truck had an invoice price of $125,000.
Huffington was given a $12,000 trade-in allowance on the old truck, which meant they paid $113,000
in addition to the old truck to acquire the new truck. What is the recorded value of the new truck?
A) $15,000
B) $75,000
C) $113,000
D) $125,000
E) $128,000
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ACCT1A Sample Exam 3
28. Many companies use accelerated depreciation in computing taxable income because:
A) It is required by the tax rules.
B) It is required by financial reporting rules.
C) It postpones tax payments until later years, and the company can use the resources now to earn
additional income before payment is due.
D) Using it causes a company to use higher income in the early years of the asset's useful life.
E) The results are identical to straight-line depreciation.
29. A company used straight-line depreciation for an item of equipment that cost $12,000, had a salvage
value of $2,000, and had a five-year useful life. After depreciating the asset for three complete years,
the salvage value was reduced to $1,200 and its total useful life was increased from 5 years to 6 years.
Determine the amount of depreciation to be charged against the machine during each of the remaining
years of its useful life:
A) $1,000.
B) $1,800.
C) $1,467.
D) $1,600.
E) $2,160.
30. A method that allocates an equal portion of the total depreciable cost for a plant asset to each unit
produced is called:
A) Accelerated depreciation.
B) Declining-balance depreciation.
C) Straight-line depreciation.
D) Units-of-production depreciation.
E) Modified accelerated cost recovery system (MACRS) depreciation.
32. Assume Fairytale Brownies sold a wrapping/packaging machine for cash of $172,000. If Accumulated
depreciation on the sale date was $58,311 and a gain of $6,721 was recognized on the sale. What
was the original cost of the asset?
A) $223,590.
B) $216,869.
C) $165,279.
D) $65,032.
E) $113,689.
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ACCT1A Sample Exam 3
36. The total cost of an asset less its accumulated depreciation is called:
A) Historical cost.
B) Book value.
C) Present value.
D) Current (market) value.
E) Replacement cost.
39. A leasehold:
A) Is a short-term rental agreement.
B) Is the same as a patent.
C) Are the rights granted to the lessee by the lessor of a lease.
D) Is recorded as rent expense.
E) Is an investment asset.
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ACCT1A Sample Exam 3
43. A company purchased property for a building site. The costs associated with the property were:
What portion of these costs should be allocated to the cost of the land and what portion should be
allocated to the cost of the new building?
A) $175,800 to Land; $18,800 to Building.
B) $190,000 to Land; $3,800 to Building.
C) $190,800 to Land; $1,000 to Building.
D) $192,800 to Land; $0 to Building.
E) $193,800 to Land; $0 to Building.
44. A company purchased a rope braiding machine for $190,000. The machine has a useful life of 8 years
and a residual value of $10,000. It is estimated that the machine could produce 750,000 units of
climbing rope over its useful life. In the first year, 105,000 units were produced. In the second year,
production increased to 109,000 units. Using the units-of-production method, what is the amount of
depreciation that should be recorded for the second year?
A) $25,200.
B) $26,160.
C) $26,660.
D) $27,613.
E) $53,160.
46. Which of the following costs should be recorded as the cost of a given machine?
1. Purchase price
2. Costs to assemble the machine
3. Costs to test the machine
4. Costs of a worker injured while the machine was being tested
A) All of these items make up the cost of the machine.
B) Items 1, 2 and 3.
C) Items 2, 3 and 4.
D) Items 3, 4 and 1.
E) Items 1 and 2.
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ACCT1A Sample Exam 3
47. The New Deal is a used-car dealership which owns the following four assets. Identify those which are
considered plant assets.
1. Cars and vans which they plan to sell to customers
2. A van which is used to provide courtesy rides to customers who are having their cars serviced at
the dealership.
3. A show room used to display some of the more high-end vehicles for sale
4. A building and land which was purchased as an investment which are not used in the company's
operations.
A) All are plant assets.
B) Items 1 and 2 are plant assets.
C) Items 3 and 4 are plant assets.
D) Items 1, 3 and 4 are plant assets.
E) Items 2 and 3 are plant assets.
49. When originally purchased, a vehicle had an estimated useful life of 8 years. The vehicle cost $23,000
and its estimated salvage value is $1,500. After 4 years of straight-line depreciation, the asset's total
estimated useful life was revised from 8 years to 6 years and there was no change in the estimated
salvage value. The depreciation expense in year 5 equals:
A) $ 5,375.00.
B) $ 2,687.50.
C) $ 5,543.75.
D) $10,750.00.
E) $ 2,856.25.
50. Obsolescence:
A) Occurs when an asset is at the end of its useful life.
B) Refers to a plant asset that is no longer useful in producing goods and services.
C) Refers to the insufficient capacity of a company's plant assets to meet the company's productive
demands.
D) Occurs when an asset's salvage value is less than its replacement cost.
E) Does not affect plant assets.
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ACCT1A Sample Exam 3
53. Obligations not expected to be paid within the longer of one year or the company's operating cycle are
reported as:
A) Current assets.
B) Current liabilities.
C) Long-term liabilities.
D) Operating cycle liabilities.
E) Bills.
55. A company had fixed interest expense of $6,000, its income before interest expense and any income
taxes is $18,000, and its net income is $8,400. The company's times interest earned ratio equals:
A) 0.33.
B) 0.71.
C) 1.40.
D) 3.00.
E) 12,000.
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ACCT1A Sample Exam 3
64. An employee earned $47,000 during the year working for an employer. The FICA tax for social
security is 6.2% and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is:
A) $ 681.50.
B) $2,914.00.
C) $3,595.50.
D) $7,191.00.
E) Zero, since the employee's pay exceeds the FICA limit.
66. A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of
these sales will result in warranty work. The company should:
A) Consider the warranty expense a remote liability since the rate is only 2%.
B) Recognize warranty expense at the time the warranty work is performed.
C) Recognize warranty expense and liability in the year of the sale.
D) Consider the warranty expense a contingent liability.
E) Recognize warranty liability when the company purchases the trampolines.
67. A company sells leaf blowers for $170 each. Each unit has a 3 year warranty that covers replacement
of defective parts. It is estimated that 4% of all leaf blowers sold will be returned under the warranty
at an average cost of $30 each. During October, the company sold 400,000 leaf blowers. 800 leaf
blowers were serviced under the warranty during October at a total cost of $25,000. The balance in
the Estimated Warranty Liability account on October 1 was $12,500. What is the company's warranty
expense for the month of October?
A) $24,000.
B) $25,000.
C) $37,500.
D) $467,500.
E) $480,000.
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ACCT1A Sample Exam 3
69. The current FUTA tax rate is 0.8%, and the SUTA tax rate is 5.4%. Both taxes are applied to the first
$7,000 of an employee's pay. Assume that an employee earned $8,900. What is the amount of total
unemployment taxes the employer must pay on this employee's wages?
A) $322.00.
B) $434.00.
C) $480.60.
D) $551.80.
E) Zero, since the employee's wages exceed the maximum of $7,000.
71. Obligations due to be paid within one year or the company's operating cycle, whichever is longer, are:
A) Current assets.
B) Current liabilities.
C) Earned revenues.
D) Operating cycle liabilities.
E) Bills.
74. The amount of federal income taxes withheld from an employee's paycheck is determined by:
A) The employee's annual earnings rate and number of withholding allowances.
B) The employer's merit rating.
C) The amount of social security taxes.
D) Multiplying the gross pay by 6.2%.
E) All of the above.
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ACCT1A Sample Exam 3
Answer Key
1. C
2. E
3. B
4. B
5. A
6. A
7. A
8. D
9. A
10. A
11. B
12. C
13. D
14. C
15. B
16. B
17. D
18. B
19. B
20. C
21. D
22. C
23. E
24. C
25. A
26. E
27. D
28. C
29. D
30. D
31. E
32. A
33. A
34. E
35. A
36. B
37. C
38. C
39. C
40. E
41. A
42. E
43. E
44. B
45. E
46. B
47. E
48. B
49. A
50. B
51. D
52. A
53. C
54. E
55. D
56. C
57. E
58. C
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ACCT1A Sample Exam 3
59. B
60. A
61. E
62. E
63. E
64. C
65. A
66. C
67. E
68. E
69. B
70. A
71. B
72. C
73. B
74. A
75. A
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