Final Exam

Topics: Expense, Generally Accepted Accounting Principles, Operating expense Pages: 8 (1129 words) Published: February 26, 2014
ACC/291 - Final Exam Study Guide

1. Ordinary repairs are expenses to keep a plant asset functioning properly:

Revenue expenditures

Explanation: Revenue expenditure is an ongoing cost to maintain the operational efficiency of an asset.

2. Percentage of receivables method:
Estimated uncollectible accounts = $15,000.
Allowance for Doubtful Accounts = $3,000
What is the amount of bad debts expense?

$12,000

Explanation: This entry simply requires you to subtract 3,000 from the 15,000 in estimated uncollectable accounts.

3. What is true about intangible assets?

They should be reported with a separate classification on the balance sheet

Explanation: Intangible assets should be organized into its own distinct group on the balance sheet.

4. Intangible assets are the rights and privileges from assets with which characteristic?

They do not have physical substance

Explanation: Intangible assets are things like copyrights, patents, trademarks, trade secrets, and software code.

5. What is the book value of an asset?

The asset’s cost less its accumulated depreciation

Explanation: Book value is its value on paper, but does not accurately reflect the true market value.

6. Gains experienced on the sale of plant assets should:

Be recognized immediately

Explanation: If a company sells an asset for a capital gain, it will need to immediately report this gain on the books.

7. Percentage of sales method for recording bad debts expense. Cash sales = $300,000.
Credit sales = $1,200,000.
1% = sales percentage estimated by management.
Enter the correct adjusting entry:

Bad Debts Expense --- $12,000
Allowances for Doubtful Accounts --- $12,000

Explanation: Debit bad debts expense, credit allowance for doubtful accounts.

8. Costs to improve the operating efficiency or extend the life of a plant asset are commonly called?

Capital expenditures

Explanation: If you add a new arm to your robot machine to increase productivity, you have made a capital expenditure.

9. What happens to the notes payable account when an interest-bearing note matures? It will be less than the total amount repaid by the borrower

Explanation: The account will not take into account all of the interest that has been paid, as this is called interest income or revenue.

10. How much interest is charged on a $200,000 note payable with an annual rate of 6%, after 2 months.

$2,000

Explanation: (200,000 x 0.06) / 6 = $2,000

11. A large company issues $3,000,000 in bonds that pay 10% annual interest, what is the annual net cash cost of this borrowing if the income tax rate is 30%?

$210,000

Explanation: 3,000,000 x 0.1 = 300,0000
300,000 x 0.3 = 90,000
300,000 – 90,000 = $210,000

12. A company created a four-year interest-bearing note payable for $300,000 on January 1, 2012. Each January the company is required to pay $75,000 on the note. How will this note be reported on the December 31, 2013 balance sheet?

Long-term debt, $150,000; Long-term debt due within one year, $75,000.

Explanation: Long term debt due within one year must be reported separately on the balance sheet according to GAAP rules.

13. A company has created a $600,000, 10%, 5-year bonds on January 1, 2012 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

$25,946

Explanation: Solution is found using a basic amortization formula I = npt – P.

14 What can be expected with the effective-interest method on bond discount amortization?

Interest expense should not be a constant dollar amount during the life of the bond

Explanation: The interest expense should vary each accounting period.

15. What do we call it when a corporation has only one...
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