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ACC291 Final Exam

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1. Hahn Company uses the percentage of sales method for recording bad debts expense.
For the year, cash sales are $300,000 and credit sales are $1,200,000. Management
estimates that 1% is the sales percentage to use. What adjusting entry will Hahn
Company make to record the bad debts expense?

a. Bad Debts Expense ...................................................... 15,000
Allowance for Doubtful Accounts .......................... 15,000

b. Bad Debts Expense ...................................................... 12,000
Allowance for Doubtful Accounts .......................... 12,000

c. Bad Debts Expense ...................................................... 12,000
Accounts Receivable ............................................ 12,000

d. Bad Debts Expense ...................................................... 15,000
Accounts Receivable ............................................ 15,000

2. Using the percentage of receivables method for recording bad debts expense, estimated
u ncollectible accounts are $15,000. If the balance of the Allowance for Doubtful
Accounts is $3,000 credit before adjustment, what is the amount of bad debts expense
for that period?

a. $15,000
b. $12,000
c. $18,000
d. $3,000

3. Intangible assets
a. should be reported under the heading Property, Plant, and Equipment.
b. are not reported on the statement of financial position because they lack physical
c. should be reported as Current Assets on the statement of financial position.
d. should be reported as a separate classification on the statement of financial position.

4. Intangible assets are the rights and privileges that result from ownership of long-lived
assets that
a. must be generated internally.
b. are depletable natural resources.
c. have been exchanged at a gain.
d. do not possess physical substance.

5. The book value of an asset is equal to the
a. asset's fair value less its historical cost.
b. blue book value relied on by secondary markets.
c. replacement cost of the asset.
d. asset's cost less accumulated depreciation.

6. Gains on an exchange of plant assets that has commercial substance are
a. deducted from the cost of the new asset acquired.
b. deferred.
c. not possible.
d. recognized immediately.

7. Ordinary repairs are expenditures to maintain the operating efficiency of a plant asset and
are referred to as
a. capital expenditures.
b. expense expenditures.
c. improvements.
d. revenue expenditures

8. Costs incurred to increase the operating efficiency or useful life of a plant asset are
referred to as
a. capital expenditures.
b. expense expenditures.
c. ordinary repairs.
d. revenue expenditures.

9. When an interest-bearing note matures, the balance in the Notes Payable account is
a. less than the total amount repaid by the borrower.
b. the difference between the maturity value of the note and the face value of the note.
c. equal to the total amount repaid by the borrower.
d. greater than the total amount repaid by the borrower

10. The interest charged on a $200,000,000 note payable, at the rate of 6%, on a 2-month
note would be
a. $12,000,000.
b. $6,000,000.
c. $3,000,000.
d. $2,000,000

11. If a corporation issued $3,000,000 in bonds which pay 10% annual interest, what is
the annual net cash cost of this borrowing if the income tax rate is 30%?
a. $3,000,000
b. $90,000
c. $300,000
d. $210,000

12. Hilton Company issued a four-year interest-bearing note payable for $300,000 on January
1, 2011. Each January the company is required to pay $75,000 on the note. How will this
note be reported on the December 31, 2012 statement of financial position?
a. Long-term debt, $300,000.
b. Long-term debt, $225,000.
c. Long-term debt, $150,000; Long-term debt due within one year, $75,000.
d. Long-term debt, $225,000; Long-term debt due within one year, $75,000.

13. A corporation issued $600,000, 10%, 5-year bonds on January 1, 2011 for
648,666, which reflects an effective-interest rate of 8%. Interest is paid semiannually
on January 1 and July 1. If the corporation uses the effective-interest method of
amortization of bond premium, the amount of bond interest expense to be recognized on
July 1, 2011, is
a. $30,000
b. $24,000
c. $32,434
d. $25,946

14. When the effective-interest method of bond discount amortization is used,
a. the applicable interest rate used to compute interest expense is the prevailing market
interest rate on the date of each interest payment date.
b. the carrying value of the bonds will decrease each period.
c. interest expense will not be a constant dollar amount over the life of the bond.
d. interest paid to bondholders will be a function of the effective-interest rate on the date
the bonds are issued.

15. If a corporation has only one class of shares, it is referred to as
a. classless shares.
b. preference shares.
c. solitary shares.
d. Common stock

16. Capital stock to which the charter has assigned a value per share is called
a. par value shares.
b. no-par value shares.
c. stated value shares.
d. assigned value shares.

17. ABC, Inc. has 1,000 shares of 5%, $100 par value, cumulative preference shares and
50,000 ordinary shares with a $1 par value outstanding at December 31, 2011. What is
the annual dividend on the preference shares?
a. $50 per share
b. $5,000 in total
c. $500 in total
d. $.50 per share

18. Manner, Inc. has 5,000 shares of 5%, $100 par value, noncumulative preference shares
and 20,000 ordinary shares with a ₤1 par value outstanding at December 31, 2011. There
were no dividends declared in 2010. The board of directors declares and pays a $45,000
dividend in 2011. What is the amount of dividends received by the ordinary shareholders
in 2011?
a. $0
b. $25,000
c. $45,000
d. $20,000

19. When the selling price of treasury shares is greater than its cost, the company credits the
difference to
a. Gain on Sale of Treasury Shares.
b. Share Premium Treasury (Paid-in Capital from Treasury Stock)
c. Share Premium–Ordinary.
d. Treasury Shares.

20. The purchase of treasury stock
a. decreases common stock authorized.
b. decreases common stock issued.
c. decreases common stock outstanding
d. has no effect on common stock outstanding

21. Marsh Company has other operating expenses of $240,000. There has been an increase
in prepaid expenses of $16,000 during the year, and accrued liabilities are $24,000 lower
than in the prior period. Using the direct method of reporting cash flows from operating
activities, what were Marsh's cash payments for operating expenses?
a. $228,000
b. $232,000
c. $200,000
d. $280,000

22. Indicate where would the event purchased land for cash appear, if at all, on the indirect
statement of cash flows.
a. Operating activities section
b. Investing activities section
c. Financing activities section
d. Does not represent a cash flow

23. In performing a vertical analysis, the base for cost of goods sold is
a. total selling expenses.
b. net sales.
c. total revenues.
d. total expenses.

24. Blanco, Inc. has the following income statement (in millions):
Income Statement
For the Year Ended December 31, 2011
Net Sales $200
Cost of Goods Sold 120
Gross Profit 80
Operating Expenses 44
Net Income $ 36
Using vertical analysis, what percentage is assigned to Net Income?

a. 100%
b. 82%
c. 18% (36/200)
d. None of the above

25. Dawson Company issued 500 no-par ordinary shares for $4,500. Which of the following
journal entries would be made if the shares have a stated value of $2 per share?
a. Cash 4,500
Common stock 4,500

b. Cash 4,500
Common stock 3,500
Paid in capital excess of par 1,000

c. Cash 4,500
common stock 1,000
Paid in capital in excess of stated value 3,500

d. Common stock 4,500
Cash 4,500

26. Andrews, Inc. paid $45,000 to buy back 9,000 shares of its $1 par value ordinary shares.
These shares were sold later at a selling price of $6 per share. The entry to record the
sale includes a
a. credit to Share Premium–Treasury for $9,000.
b. credit to Retained Earnings for $9,000.
c. debit to Share Premium–Treasury for $45,000.
d. debit to Retained Earnings for $45,000.

27. Which of the following is a fundamental factor in having an effective, ethical corporate culture?
a. efficient oversight by the company’s board of directors
b. Workplace ethics
c. Code of conduct
d. Ethic s of management programs

28. Two individuals at a retail store work the same cash register. You evaluate this situation as
a. a violation of establishment of responsibility.
b. a violation of segregation of duties.
c. supporting the establishment of responsibility.
d. supporting internal independent verification.

29. The Sarbanes-Oxley Act imposed which new penalty for executives?
A. Fines
B. Suspension
C. Criminal prosecution for executives
D. Return of ill-gotten gains

30. The Sarbanes-Oxley Act requires that all publicly traded companies maintain a system of internal controls. Internal controls can be defined as a plan to
A. safeguard assets
B. monitor balance sheets
C. control liabilities
D. evaluate capital stock

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