3rd Examination Test in Accounting

1. Cash dividends of $85,000 were declared during the year. Cash dividends
payable were $10,000 and $15,000 at the beginning and end of the year,
respectively. The amount of cash for the payment of dividends during the
year is

$80,000

$75,000

$95,000

$90,000 - $80,000

2. Par value

is established for a share of stock after it is issued

is the monetary value assigned per share in the corporate charter

represents the original selling price for a share of stock

represents what a share of stock is worth- is the monetary value assigned

per share in the corporate charter

3. A characteristic of a fixed asset is that it is

* held for sale in the ordinary
course of the business
*used in the operations of a
business
* intangible
* a short-term investment- used in the operations of a business

4. The charter of a corporation provides for the issuance of 100,000 shares

of common stock. Assume that 40,000 shares were originally issued and
10,000 were subsequently reacquired. What is the number of shares
outstanding?

10,000

40,000

50,000

30,000- 30,000
Number of shares outstanding = Number of shares originally issued -
Number of shares reacquired = 40,000 - 10,000 = 30,000
5. When the amount of use of a fixed asset varies from year to year, the
method of determining depreciation expense that best matches allocation
of cost with revenue is
*units-of-activity method
*MACRS
*double-declining-balance
method
*straight-line method- units-of-activity method

6. The entry to record the issuance of 150 shares of $5 par common stock at
par to an attorney in payment of legal fees for organizing the corporation
includes a credit to

Organizational Expenses

Cash

Goodwill

Common Stock- Common Stock

7. A machine with a cost of $65,000 has an estimated residual value of

$5,000 and an estimated life of 4 years or 18,000 hours. What is the
amount of depreciation for the second full year, using the double-
declining-balance method?

$15,000

$16,250

$30,000

$32,500- $16,250

8. Treasury stock that was purchased for $3,000 is sold for $3,500. As a
result of these two transactions combined

income will be increased by $500

stockholders' equity will be increased by $3,500

stockholders' equity will not change

stockholders' equity will be increased by $500- stockholders' equity will be

increased by $500
Effect on stockholders' equity = Sale price of treasury stock - Purchase
price of treasury stock = $3,500 - $3,000 = $500

Increase in stockholders' equity = $500

9. Which of the following is an example of a capital expenditure?
*tune-up for a company truck
* replacing an engine in a
company car
*replacing all burned-out light
bulbs in the factory
*cleaning the carpet in the
front room- replacing an engine in a company car

10. Stockholders' equity

is shown on the income statement

includes paid-in capital and liabilities

is usually equal to cash on hand

includes retained earnings and paid-in capital

11. On December 31, Strike Company has decided to discard one of its
batting cages. The equipment had an initial cost of $310,000 and has
accumulated depreciation of $260,000. Depreciation has been recorded
up to the end of the year. Which of the following will be included in the
entry to record the disposal?
*Accumulated Depreciation,
debit, $310,000
*Equipment, credit, $310,000
* Loss on Disposal of Asset;
debit, $260,000
*Gain on Disposal of Asset,
credit, $50,00- Equipment, credit, $310,000

12. Which of the following statements is not true about a 2-for-1 split?

Total contributed capital increases.

A stockholder with ten shares before the split owns twenty shares after the
split.

The market price will probably decrease.

Par value per share is reduced to half of what it was before the split.- Total
contributed capital increases.

13. The Weber Company purchased a mining site for $1,600,000 on July 1.
The company expects to mine ore for the next 10 years and anticipates
that a total of 400,000 tons will be recovered. During the first year, the
company extracted 6,500 tons of ore. The depletion expense is
$16,000
$17,500

$15,000

$26,000- $26,000
Depletion Rate = Cost of Resource / Estimated Total Units of Resource =
$1,600,000 / 400,000 = $4

Depletion Expense = Depletion Rate × Quantity Extracted = $4 × 6,500

tons = $26,000

14. A company with 100,000 authorized shares of $4 par common stock

issued 50,000 shares at $9. Subsequently, the company declared a 2%
stock dividend on a date when the market price was $10 a share. The
effect of the declaration and issuance of the stock dividend is to

decrease retained earnings, increase common stock, and decrease paid-in

capital

decrease retained earnings, increase common stock, and increase paid-in

capital

increase retained earnings, decrease common stock, and increase paid-in

capital

increase retained earnings, decrease common stock, and decrease paid-in

capital- decrease retained earnings, increase common stock, and
increase paid-in capital

15. Accumulated Depreciation

*is used to show the amount of cost expiration of intangibles

*is the same as Depreciation

Expense

*is a contra asset account

*is used to show the amount of cost expiration of natural resources- is a

contra asset account

16. Cash paid for equipment would be reported on the statement of cash
flows in

the cash flows from operating activities section

the cash flows from investing activities section

a separate schedule
 the cash flows from financing activities section- the cash flows from
investing activities section

17. A machine with a cost of $65,000 has an estimated residual value of

$5,000 and an estimated life of 5 years or 15,000 hours. It is to be
depreciated by the units-of-activity method. What is the amount of
depreciation for the second full year, during which the machine was used
5,000 hours?
$12,000

$8,000

$20,000

$21,667- $20,000

18. Depreciation on factory equipment would be reported in the statement of

cash flows prepared by the indirect method in

the cash flows from operating activities section

the cash flows from investing activities section

a separate schedule

the cash flows from financing activities section- the cash flows from
operating activities section

19. On June 8, Williams Company issued an $80,000, 5%, 120-day note

payable to Brown Industries. Assuming a 360-day year, what is the
maturity value of the note? When required, round your answer to the
nearest dollar.
$84,000

$82,600

$88,200

$81,333- $81,333
Maturity value of the note = [$80,000 + ($80,000 × 5% × 120 ÷ 360)] =
$81,333

20. Which of the following should be shown on a statement of cash flows

under the financing activities section?

the payment of cash to pay off a long-term note

the purchase of a long-term investment in the common stock of another

company
21. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to
Still Co. Assume that the fiscal year of Acme Co. ends June 30. What is
the amount of interest expense recognized by Acme in the following
(second) year?

$1,306.67

$1,208.89

$1,200.00

$1,600.00- $1,306.67

22. Which of the following is a noncash investing and financing activity?

purchase of inventory on account

payment of a cash dividend

issuance of common stock to acquire land

payment of a six-month note payable- issuance of common stock to

acquire land

23. The journal entry used to record the issuance of an interest-bearing note
for the purpose of borrowing funds for the business is

debit Notes Payable; credit Cash

debit Cash; credit Notes Payable

debit Cash and Interest Expense; credit Notes Payable

debit Accounts Payable; credit Notes Payable- debit Cash; credit Notes
Payable

24. A building with a book value of $54,000 is sold for $63,000 cash. Using
the indirect method, this transaction should be shown on the statement of
cash flows as follows:

an increase of $63,000 from investing activities and a deduction from net

income of $9,000

an increase of $54,000 from investing activities

an increase of $9,000 from investing activities

 an increase of $54,000 from investing activities and an addition to net income
of $9,000- an increase of $63,000 from investing activities and a
deduction from net income of $9,000
Gain on sale of building = $63,000 - $54,000 = $9,000

Pilgrim Company sells merchandise with a one year warranty. In 2020, sales
consisted of 1,500 units. It is estimated that warranty repairs will average $10
per unit sold, and 30% of the repairs will be made in 2020 and 70% in 2021.
In the 2020 income statement, Pilgrim should show warranty expense of:

$10,500

$15,000

$0

$4,500- $15,000

25. The current period statement of cash flows includes the flowing:

Cash balance at the beginning of the period $160,000

Cash provided by operating activities 65,000

Cash provided by investing activities 20,000

Cash used in financing activities 17,000

$262,000

$92,000

$228,000

$98,000- $228,000

26. Which of the following will have no effect on an employee's take-home

pay?

marital status

unemployment tax

social security tax

number of exemptions claimed- unemployment tax

27. Cash dividends of $85,000 were declared during the year. Cash dividends
payable were $10,000 and $15,000 at the beginning and end of the year,
 respectively. The amount of cash for the payment of dividends during the
year is

$95,000

$90,000

$80,000

$75,000- $80,000

28. The journal entry a company uses to record partially funded pension
rights for its salaried employees at the end of the year is

debit Pension Expense; credit Cash

debit Pension Expense; credit Unfunded Pension Liability and Cash

debit Salary Expense; credit Cash

debit Pension Expense; credit Unfunded Pension Liability- debit Pension

Expense; credit Unfunded Pension Liability and Cash

29. Which of the following is not one of the four basic financial statements?

balance sheet

income statement

statement of cash flows

statement of changes in financial position- statement of changes in

financial position

30. Characteristics of a corporation include

shareholders who have limited liability

its inability to own property

direct management by the shareholders (owners)

a limited lifespan- shareholders who have limited liability

31. Which of the following are criteria for determining whether to record an
asset as a fixed asset?

must be tangible and an investment

must be an investment and long lived

must be short lived and tangible

must be long lived and used by the company in its normal operations- must
be long lived and used by the company in its normal operations

32. The method of determining depreciation that yields successive reductions

in the periodic depreciation charge over the estimated life of the asset is
the

units-of-activity method

straight-line method

time-valuation method

double-declining-balance method- double-declining-balance method

33. A machine with a cost of $65,000 has an estimated residual value of

$5,000 and an estimated life of 4 years or 18,000 hours. What is the
amount of depreciation for the second full year, using the double-
declining-balance method?

$15,000

$30,000

$32,500

$16,250- $16,250

34. Which bof the following is an example of a capital expenditure?

cleaning the carpet in the front room

replacing an engine in a company car

tune-up for a company truck

replacing all burned-out light bulbs in the factory- replacing an engine in a

company car

35. On December 31, Strike Company sold one of its batting cages for
$55,000. The equipment had an initial cost of $310,000 and has
accumulated depreciation of $260,000. Depreciation has been taken up to
the end of the year. What is the amount of the gain or loss on this
transaction?

loss of $5,000
gain of $5,000

gain of $55,000

loss of $55,000- gain of $5,000

Gain on sale = Selling price - Book value of asset = $55,000 - ($310,000 -

$260,000) = $5,000

36. The Weber Company purchased a mining site for $500,000 on July 1,
2020. The company expects to mine ore for the next 10 years and
anticipates that a total of 100,000 tons will be recovered. The estimated
residual value of the property is $80,000. During 2020 the company
extracted and sold 6,000 tons of ore. The depletion expense for 2020 is:

$50,000

$12,600

$42,000

$25,200- $25,200

37. Accumulated Depreciation:

is used to show the amount of cost expiration of natural resources

is used to show the amount of cost expiration of intangibles

is the same as Depreciation Expense

is a contra asset account- is a contra asset account

38. A machine with a cost of $65,000 has an estimated residual value of

$5,000 and an estimated life of 5 years or 15,000 hours. It is to be
depreciated by the units-of-activity method. What is the amount of
depreciation for the second full year, during which the machine was used
5,000 hours?

$8,000

$21,667

$20,000

$12,000- $20,000
39. The interest on a $70,000, 30-day, 6% note payable is:

$350

$70,350

$4,200

$74,200- $350

40. On June 1, Davis Inc. issued an $84,000, 5%, 120-day note payable to
Garcia Company. Assume that the fiscal year of Garcia ends June 30.
Using a 360-day year, what is the amount of interest revenue recognized
by Garcia in the second year? When required, round your answer to the
nearest dollar.

$1,600

$700

$4,200

$1,062- $1,062
Amount of revenue recognized = [($84,000 × 5% × 120 ÷ 360) × (120 -
29) / 120] = $1,062

41. The journal entry used to record the payment of a discounted note is

debit Accounts Payable; credit Cash

debit Cash; credit Notes Payable

debit Notes Payable and Interest Expense; credit Cash

debit Notes Payable; credit Cash- debit Notes Payable; credit Cash

42. Hall Company sells merchandise with a one-year warranty. In the current
year, sales consisted of 4,500 units. It is estimated that warranty repairs
will average $10 per unit sold, and 30% of the repairs will be made in the
current year and 70% in the next year. In the current year's income
statement, Hall should show warranty expense of

$45,000

$13,500

$31,500

$0- $45,000
Warranty expense = Sales units × Average warranty repairs = 4,500 units
× $10 = $45,000

43. Most employers are required to withhold from employees for:

state unemployment compensation tax

both federal and state unemployment compensation tax

federal income tax

federal unemployment compensation tax- federal income tax

44. The journal entry a company uses to record accrued vacation privileges
for its employees at the end of the year is

debit Salary Expense; credit Cash

debit Vacation Pay Expense; credit Vacation Pay Payable

debit Vacation Pay Payable; credit Vacation Pay Expense

debit Salary Expense; credit Salaries Payable- debit Vacation Pay Expense;
credit Vacation Pay Payable

45. Which one of the following would not be considered an advantage of the
corporate form of organization?

limited liability of stockholders

government regulation

continuous life

separate legal existence- government regulation

46. The charter of a corporation provides for the issuance of 100,000 shares
of common stock. Assume that 40,000 shares were originally issued and
5,000 were subsequently reacquired. What is the number of shares
outstanding?

55,000

5,000

35,000

45,000- 35,000
47. Par value

represents the original selling price for a share of stock

is established for a share of stock after it is issued

represents what a share of stock is worth

is the monetary value assigned per share in the corporate charter- is the
monetary value assigned per share in the corporate charter

48. The Sneed Corporation issues 10,000 shares of $50 par preferred stock
for cash at $75 per share. The entry to record the transaction will consist
of a debit to Cash for $750,000 and a credit or credits to

Preferred Stock for $750,000

Preferred Stock for $500,000 and Paid-In Capital in Excess of Par—Preferred

Stock for $250,000

Preferred Stock for $500,000 and Retained Earnings for $250,000

Paid-In Capital from Preferred Stock for $750,000- Preferred Stock for
$500,000 and Paid-In Capital in Excess of Par—Preferred Stock for
$250,000

49. Stockholders' equity

is shown on the income statement

includes retained earnings and paid-in capital

includes paid-in capital and liabilities

is usually equal to cash on hand- includes retained earnings and paid-in

capital

50. Treasury stock that had been purchased for $5,400 last month was
reissued this month for $7,500. The journal entry to record the reissuance
would include a credit to:

Paid-In Capital from Treasury Stock for $7,500

Paid-In Capital from Treasury Stock for $2,100

Paid-In Capital in Excess of Par/Common for $2,100

Treasury Stock for $7,500- Paid-In Capital from Treasury Stock for $2,100
51. The liability for a dividend is recorded on which of the following dates?

the date of payment

the date of record

the date of declaration

the last day of the fiscal year- the date of declaration

52. Which of the following types of transactions would be reported as a cash

flow from investing activity on the statement of cash flows?

purchase of treasury stock

issuance of common stock

issuance of bonds payable

purchase of long-term assets- purchase of long-term assets

53. A corporation has 50,000 shares of $28 par value stock outstanding that
has a current market value of $160. If the corporation issues a 4-for-1
stock split, the market value of the stock will fall to approximately:

$7

$640

$112

$40- $40

54. Which of the following would not be classified as an operating activity?

payment of accrued income taxes

payment of accrued selling expenses

payment of accrued interest expense

payment of dividends- payment of dividends

55. Cash paid for preferred stock dividends should be shown on the
statement of cash flows under

noncash investing and financing activities

investing activities
operating activities

financing activities- financing activities

56. Preferred stock issued in exchange for land would be reported in the
statement of cash flows in

a separate schedule

the cash flows from financing activities section

the cash flows from operating activities section

the cash flows from investing activities section- a separate schedule

57. On the statement of cash flows prepared by the indirect method, a

$50,000 gain on the sale of investments would be

deducted from net income in converting the net income reported on the
income statement to cash flows from operating activities

added to dividends declared in converting the dividends declared to the cash

flows from financing activities related to dividends

deducted from dividends declared in converting the dividends declared to the

cash flows from financing activities related to dividends

added to net income in converting the net income reported on the income
statement to cash flows from operating activities- deducted from net income
in converting the net income reported on the income statement to cash
flows from operating activities

58. The current period statement of cash flows includes the following:

Cash balance at the beginning of the period

$310,000

Net cash flow from operating activities

185,000

Net cash flow used for investing activities

43,000

Net cash flow used for financing activities

97,000

$125,000

$45,000
$635,000

$355,000- $355,000

Cash balance at the end of the period = $310,000 + $185,000 - $43,000 -

$97,000 = $355,000

59. Which of the following is not one of the four basic financial statements?

statement of cash flows

balance sheet

statement of changes in financial position

income statement- statement of changes in financial position

60. A new machine with a purchase price of $94,000, with transportation

costs of $8,000, installation costs of $6,000, and special acquisition fees
of $2,000, would have a cost basis of:

$102,000

$110,000

$ 96,000

$108,000- $110,000

61. All of the following are needed for the calculation of straight-line
depreciation except

cost

estimated life

units produced

residual value- units produced

62. A machine with a cost of $45,000 has an estimated residual value of

$5,000 and an estimated life of 5 years or 15,000 hours. What is the
amount of depreciation for the second full year, using the double-
declining-balance method?

$16,000

$10,800

$9,600
$18,000- $10,800

63. Which of the following is an example of a capital expenditure?

tune-up for a company truck

cleaning the carpet in the front room

replacing an engine in a company car

64. replacing all burned-out light bulbs in the factory- replacing an engine in a
company car

65. On December 31, Strike Company sold one of its batting cages for
$20,000. The equipment had an initial cost of $310,000 and had
accumulated depreciation of $260,000. Depreciation has been recorded
up to the end of the year. What is the amount of the gain or loss on this
transaction?

loss of $20,000

loss of $30,000

gain of $20,000

gain of $30,000- loss of $30,000

Loss on sale = Selling price - Book value of asset = $20,000 - ($310,000 -

$260,000) = $(30,000)

66. The Weber Company purchased a mining site for $1,600,000 on July 1.
The company expects to mine ore for the next 10 years and anticipates
that a total of 400,000 tons will be recovered. During the first year, the
company extracted 6,500 tons of ore. The depletion expense is- $26,000

Depletion Rate = Cost of Resource / Estimated Total Units of Resource =

$1,600,000 / 400,000 = $4

Depletion Expense = Depletion Rate × Quantity Extracted = $4 × 6,500

tons = $26,000

67. Fixed assets are ordinarily presented on the balance sheet

at replacement costs

in a separate section along with intangible assets

at current market values

at cost less accumulated depreciation- at cost less accumulated
depreciation

68. Equipment with a cost of $160,000 has an estimated residual value of

$10,000 and an estimated life of 5 years or 12,000 hours. It is to be
depreciated by the units-of-activity method. What is the amount of
depreciation for the first full year, during which the equipment was used
3,300 hours?

$30,000

$41,250

$44,000

$32,000- $41,250

69. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to
Still Co. What are cash proceeds of the note?

$81,200

$84,800

$80,000

$81,600- $80,000

70. On June 8, Acme Co. issued an $80,000, 6%, 120-day note payable to
Still Co. Assume that the fiscal year of Acme Co. ends June 30. What is
the amount of interest expense recognized by Acme in the current year?

$293.33

$1600.00

$400.00

$391.11- $293.33

71. The journal entry used to record the payment of an interest-bearing note
is
debit Notes Payable and Interest Expense; credit Cash

debit Accounts Payable; credit Cash

debit Notes Payable and Interest Receivable; credit Cash

debit Cash; credit Notes Payable- debit Notes Payable and Interest
Expense; credit Cash

72. Pilgrim Company sells merchandise with a one year warranty. In 2020,
sales consisted of 1,500 units. It is estimated that warranty repairs will
average $10 per unit sold, and 30% of the repairs will be made in 2020
and 70% in 2021. In the 2020 income statement, Pilgrim should show
warranty expense of:

$10,500

$4,500

$0

$15,000- $15,000

73. Which of the following will have no effect on an employee's take-home

pay?

number of exemptions claimed

marital status

social security tax

unemployment tax- unemployment tax

74. A pension plan that promises employees a fixed annual pension benefit,
based on years of service and compensation, is called a(n)

defined contribution plan

compensation plan

unfunded plan

defined benefit plan- defined benefit plan

75. Which one of the following would not be considered an advantage of the
corporate form of organization?

government regulation

separate legal existence

limited liability of stockholders

continuous life- government regulation

76. The charter of a corporation provides for the issuance of 100,000 shares
of common stock. Assume that 30,000 shares were originally issued and
5,000 were subsequently reacquired. What is the number of shares
outstanding

35,000

25,000

70,000

30,000- 25,000

Number of shares outstanding = Number of shares originally issued -

Number of shares reacquired = 30,000 - 5,000 = 25,000

77. The par value per share of common stock represents the

minimum selling price of the stock established by the articles of incorporation

dollar amount assigned to each share

amount of dividends per share to be received each year

minimum amount the stockholder will receive when the corporation is

liquidated - dollar amount assigned to each share

78. When Wisconsin Corporation was formed on January 1, the corporate

charter provided for 100,000 shares of $10 par value common stock. The
following transaction was among those engaged in by the corporation
during its first month of operation: The corporation issued 8,500 shares of
stock at a price of $16 per share.

The entry to record the above transaction would include a

debit to Cash for $85,000

credit to Paid-In Capital in Excess of Par for $51,000

credit to Common Stock for $136,000

debit to Common Stock for $85,000 - credit to Paid-In Capital in Excess of

Par for $51,000

79. The excess of sales price of treasury stock over its cost should be
credited to

Premium on Capital Stock

Treasury Stock Receivable

Income from Sale of Treasury Stock

Paid-In Capital from Sale of Treasury Stock

80. All of the following are normally found in a corporation's stockholders'

equity section except

Dividends in Arrears

Excess of Issue Price Over Par

Common Stock

Retained Earnings- Dividends in Arrears

81. A corporation has 10,000 shares of $10 par value stock outstanding. If the
corporation issues a 2-for-1 stock split, the number of shares outstanding
after the split will be:

200,000

5,000

10,000

20,000

82. Which of the following is the appropriate general journal entry to record
the declaration of cash dividends?

Retained Earnings
Cash

Paid-In Capital
Cash Dividends Payable

Cash Dividends
Cash Dividends Payable

Cash Dividends Payable

Cash

83. Which of the following types of transactions would be reported as a cash

flow from investing activity on the statement of cash flows?

purchase of long-term assets

issuance of bonds payable

purchase of treasury stock

issuance of common stock - purchase of long-term assets

84. Under GAAP, cash receipts from interest and dividends are classified as

investing activities

financing activities

either financing or investing activities

operating activities

85. Cash paid for preferred stock dividends should be shown on the
statement of cash flows under

investing activities

noncash investing and financing activities

financing activities

operating activities- financing activities

86. A business issues 20-year bonds payable in exchange for preferred stock.
This transaction would be reported on the statement of cash flows in

the cash flows from financing activities section

the cash flows from investing activities section

the cash flows from operating activities section

a separate schedule- a separate schedule

87. On the statement of cash flows prepared by the indirect method, a

$50,000 gain on the sale of investments would be

added to net income in converting the net income reported on the income
statement to cash flows from operating activities
added to dividends declared in converting the dividends declared to the cash
flows from financing activities related to dividends

deducted from net income in converting the net income reported on the
income statement to cash flows from operating activities
deducted from dividends declared in converting the dividends declared to the
cash flows from financing activities related to dividends - deducted from net
income in converting the net income reported on the income statement
to cash flows from operating activities

88. The current period statement of cash flows includes the flowing:

Cash balance at the beginning of the period

$160,000
Cash provided by operating activities
65,000
Cash provided by investing activities
20,000
Cash used in financing activities
17,000

The cash balance at the end of the period is

$228,000

$98,000

$92,000

$262,000- $228,000

89. Cash dividends of $85,000 were declared during the year. Cash dividends
payable were $10,000 and $15,000 at the beginning and end of the year,
respectively. The amount of cash for the payment of dividends during the
year is

$75,000

$90,000

$95,000

$80,000- $80,000

90. Which of the following is not one of the four basic financial statements?

balance sheet

income statement

statement of cash flows

statement of changes in financial position