Pace University - ACC 203 Exam 2 Review. All Answers.

Pace University - ACC 203
Exam 2 review
Student: _ Answers available at https://bit.ly/2TKMjaL
__________________________________________________________________________
1. A company provides services on account. Indicate how this transaction would affect the following five
financial statement items:
Answers available at https://bit.ly/2TKMjaL
A. Option a.
B. Option b.
C. Option c.
D. Option d.

2. Gershwin Wallcovering Inc. shipped the wrong shade of paint to a customer. The customer agreed to
keep the paint upon being offered a 15% price reduction. The price reduction is an example of a:
A. Sales revenue.
B. Sales discount.
C. Sales return.
D. Sales allowance.

3. When customers purchase products on account, Spitz Manufacturing offers them a 2% reduction in the
amount owed if they pay within 10 days. This is an example of a:
A. Bad debt.
B. Sales discount.
C. Sales return.
D. Sales allowances.
4. Accounts receivable are normally reported at the:
A. Present value of future cash receipts.

B. Current value plus accrued interest.
C. Expected amount to be received.
D. Current value less expected collection costs.
5. Shupe Inc. estimates uncollectible accounts based on the percentage of accounts receivable. What effect
will recording the estimate of uncollectible accounts have on the accounting equation?
A. Increase liabilities and decrease stockholders' equity.

B. Decrease assets and decrease liabilities.
C. Decrease assets and decrease stockholders' equity.
D. Increase assets and decrease stockholders' equity.
6. Allowance for Uncollectible Accounts is:
A. An expense account.
B. A contra asset account.
C. A contra revenue account.
D. A liability account.
7. Collections of accounts receivable that previously have been written off are credited to:
A. A Gain account.
B. Accounts Receivable.
C. Bad Debt Expense.
D. Retained Earnings.
8. A company collects an account receivable previously written off. Indicate how this transaction would
affect the following five financial statement items:
A. Option a.
B. Option b.
C. Option c.
D. Option d.
9. The direct write-off method is generally not permitted for financial reporting purposes because:
A. Compared to the allowance method, it would allow greater flexibility to managers in manipulating
reported net income.
B. This method is primarily used for tax purposes.
C. It is too difficult to accurately estimate future bad debts.
D. Expenses (bad debts) are not properly matched with the revenues (credit sales) that they help to
generate.
10. Which accounting principle does the direct write-off method violate?
A. Cost.
B. Realization.
C. Revenue recognition.
D. Matching.
11. Which method is not allowed under Generally Accepted Accounting Principles for the purpose of
accounting for uncollectible accounts?
A. Allowance method.
B. Direct write-off method.
C. Aging method.
D. Percentage-of-receivables method.
12. The primary difference between a note receivable and an account receivable is:
A. A note receivable cannot be classified as a current asset.

B. Borrowers have the option of not paying a note receivable.
C. An account receivable is more likely to be collected.
D. A note receivable is evidenced by a written debt instrument.
13. Inventory does not include:
A. Materials used in the production of goods to be sold.

B. Assets intended to be sold in the normal course of business.
C. Equipment used in the manufacturing of assets for sale.
D. Assets currently in production for normal sales.
14. Cost of goods sold equals:
A. Beginning inventory - net purchases + ending inventory.

B. Beginning inventory + accounts payable - net purchases.
C. Net purchases + ending inventory - beginning inventory.
D. Beginning inventory + net purchases - ending inventory.
15. The distinction between operating and nonoperating income relates to:
A. Continuity of income.
B. Principal activities of the reporting entity.
C. Consistency of income stream.
D. Reliability of measurements.
16. In a period when inventory costs are falling, the lowest taxable income is most likely reported by using
the inventory method of:
A. Weighted-average.
B. LIFO.
C. Moving-average.
D. FIFO.
17. Which of the following is true regarding LIFO and FIFO?
A. In a period of decreasing costs, LIFO results in lower total assets than FIFO.
B. In a period of decreasing costs, LIFO results in lower net income than FIFO.
C. In a period of rising costs, LIFO results in lower net income than FIFO.
D. The amount reported for COGS is based on market value of inventory if LIFO is used.
18. The LIFO conformity rule states that if LIFO is used for:
A. One class of inventory, it must be used for all classes of inventory.

B. Tax purposes, it must be used for financial reporting.
C. One company in an affiliated group, it must be used by all companies in an affiliated group.
D. Domestic companies, it must be used by foreign partners.
19. Which inventory method is better described as having a balance sheet focus and why is it considered as
such?
A. FIFO; better approximates the value of ending inventory.

B. LIFO; better approximates the value of ending inventory.
C. LIFO; better approximates inventory cost necessary to generate revenue.
D. FIFO; better approximates inventory cost necessary to generate revenue.
20. In a perpetual inventory system, the purchase of inventory is debited to:
A. Purchases.
B. Cost of Goods Sold.
C. Inventory.
D. Accounts Payable.
21. In a perpetual inventory system, at the time of a sale the cost of inventory sold is:
A. Debited to Accounts Receivable.

B. Credited to Cost of Goods Sold.
C. Debited to Cost of Goods Sold.
D. Not recorded at the time.

22. Ending inventory is equal to the cost of items on hand plus:
A. Items in transit sold FOB shipping point.

B. Sales discounts.
C. Items in transit sold FOB destination.
D. Advertising expense.
23. What effect would an adjustment to record inventory at the lower-of-cost-or-market have on the
company's financial statements?
A. An increase to assets.
B. An increase to stockholders' equity.
C. A decrease to revenue.
D. An increase to expense.
24. The practice of using the lower-of-cost-or-market to evaluate inventory reflects which of the following
accounting principles?
A. Matching principle.
B. Revenue recognition.
C. Conservatism.
D. Materiality.
25. In a periodic inventory system, the purchase of inventory is debited to:
A. Purchases.
B. Cost of goods sold.
C. Inventory.
D. Accounts payable.
26. In a periodic inventory system, at the time of a sale the cost of inventory sold is:
A. Debited to Accounts Receivable.

B. Credited to Cost of Goods Sold.
C. Debited to Cost of Goods Sold.
D. Not recorded at this time.
27. The primary difference between the periodic and perpetual inventory systems is:
A. The reported amount of ending inventory is higher under the periodic system.
B. The perpetual system maintains a continual record of inventory transactions, whereas the periodic
system records these transactions only at the end of the period.
C. The reported amount of sales revenue is higher under the periodic inventory system.
D. The reported amount of cost of goods sold is higher under the perpetual inventory system.
28. Suppose that Hastings Corporation overstates its ending inventory for 2015. What effect will this have on
the reported amount of cost of goods sold for 2015?
A. Overstate cost of goods sold.

B. Understate cost of goods sold.
C. Have no effect on cost of goods sold.
D. Cannot be determined given the information provided.
29. Which of the following would be recorded as land improvements?
A. Property taxes.
B. Title insurance.
C. Real estate commissions.
D. Adding a parking lot.
30. The legal life of a patent is:
A. Forty years.
B. Twenty years.
C. Life of the inventor plus fifty years.
D. Indefinite.
31. Research and development costs should be:
A. Expensed in the period incurred.

B. Expensed in the period they are determined to be unsuccessful.
C. Deferred pending determination of success.
D. Expensed if unsuccessful, capitalized if successful.
.
32. Goodwill is:
A. Amortized over the greater of its estimated life or forty years.

B. Only recorded by the seller of a business.
C. The value of a business as a whole, over and above the value of its net identifiable assets.
D. Recorded when created internally through advertising expense.
33. In accounting, goodwill
A. Is never recorded.
B. May be recorded when a company's level of net income exceeds the industry average.
C. Must be expensed in the period when it is acquired.
D. May be recorded when the company purchases another business.
34. Which of the following subsequent expenditures would be capitalized?
A. Ordinary repair.
B. Costs that increase the service life of an asset.
C. Routine maintenance.
D. Ordinary repair and routine maintenance.
35. Which one of the following regarding the book value of an asset is correct?
A. It is the fair value of the asset if the asset is sold.

B. It reflects the original cost of the asset less accumulated depreciation.
C. It is the original cost of the asset minus the depreciation expense for that asset during the year.
D. It is the original cost at which the asset was purchased.
36. Which of the following is considered a "contra" account?
A. Unearned Revenue.
B. Goodwill.
C. Accumulated Depreciation.
D. Costs of Good Sold.
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37. The factors used to compute depreciation expense are an asset's:
A. Cost, residual value, and physical life.

B. Cost, residual value, and service life.
C. Fair market value, residual value, and economic life.
D. Cost, replacement value, and service life.
38. The depreciable cost used in calculating depreciation expense is:
A. Its service life.

B. The amount allowable under tax depreciation methods.
C. The difference between its replacement value and cost.
D. The asset's cost minus its estimated residual value.
39. Gains on the sale of fixed assets for cash:
A. Are the excess of the book value over the cash received.
B. Are recorded as a debit.
C. Are reported on a net-of-tax basis if material.
D. Are the excess of the cash received over the book value.
40. Return on assets is calculated as:
A. Net Income divided by total assets.

B. Net Income divided by average total assets.
C. Net Income divided by ending total assets.
D. Ending total assets divided by net income.
.
41. Recognition of impairment for long-term assets is required if book value exceeds:
A. Original cost.
B. Fair value.
C. Future cash flows.
D. Accumulated depreciation.
42. The amount of impairment loss is the excess of book value over:
A. Carrying value.
B. Future cash flows.
C. Fair value.
D. Future revenues.
43. Accounting for impairment losses:
A. Involves a two-step process to first test for impairment and then record the loss.
B. Applies only to depreciable, operational assets.
C. Applies only to assets with finite lives.
D. All of these.
44. Contrast the effects of the straight-line, declining-balance, and activity-based depreciation methods on
annual depreciation expense.
.
45. What does it mean that FIFO has a balance sheet focus and LIFO has an income statement focus?
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46. How is the receivables turnover ratio measured? What does this ratio indicate? Is a higher or
lower receivables turnover preferable?
47. Discuss the differences between the allowance method and the direct write-off method for recording
uncollectible accounts. Which of the two is acceptable under financial accounting rules?

Pace University - ACC 203 Exam 2 Review. All Answers.

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A. Present value of future cash receipts.

A. Increase liabilities and decrease stockholders' equity.

A. A note receivable cannot be classified as a current asset.

13. Inventory does not include:

A. Materials used in the production of goods to be sold.

A. Beginning inventory - net purchases + ending inventory.

17. Which of the following is true regarding LIFO and FIFO?

A. One class of inventory, it must be used for all classes of inventory.

A. FIFO; better approximates the value of ending inventory.

20. In a perpetual inventory system, the purchase of inventory is debited to:

A. Debited to Accounts Receivable.

Answers available at https://bit.ly/2TKMjaL

A. Items in transit sold FOB shipping point.

25. In a periodic inventory system, the purchase of inventory is debited to:

A. Debited to Accounts Receivable.

A. Overstate cost of goods sold.

29. Which of the following would be recorded as land improvements?

30. The legal life of a patent is:

31. Research and development costs should be:

A. Expensed in the period incurred.

A. Amortized over the greater of its estimated life or forty years.

A. It is the fair value of the asset if the asset is sold.

36. Which of the following is considered a "contra" account?

A. Cost, residual value, and physical life.

38. The depreciable cost used in calculating depreciation expense is:

A. Its service life.

40. Return on assets is calculated as:

A. Net Income divided by total assets.

43. Accounting for impairment losses:

. Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

Answers available at https://bit.ly/2TKMjaL

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