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Test #3

Multiple Choice
Identify the letter of the choice that best completes the statement or answers the question.
 

1. 

A building with an appraisal value of $157,000 is made available at an offer price of $152,000.  The purchaser acquires the property for $50,000 in cash, a 90-day note payable for $40,000, and a mortgage amounting to $60,000. The cost basis recorded in the buyer's accounting records to recognize this purchase is:
a.
$157,000
b.
$152,000
c.
$100,000
d.
$150,000
 

2. 

What is the journal entry a company would record when it acquires equipment and issues a promissory note for the entire purchase price?
a.
debit Purchases; credit Notes Payable
b.
debit Equipment; credit Cash
c.
debit Equipment; credit Accounts Payable
d.
debit Equipment; credit Notes Payable
 

3. 

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-production method.  What is the amount of depreciation for the second full year, during which the machine was used 5,000 hours?
a.
$8,000
b.
$20,000
c.
$12,000
d.
$21,667
 

4. 

Equipment purchased May 1, 200X, for $90,000 has an estimated residual value of $6,000 and an estimated life of 4 years. What is the amount of depreciation for the second full year, using the declining-balance method at double the straight-line rate?
a.
$30,000
b.
$28,000
c.
$22,500
d.
$21,000
 

5. 

Expenditures that increase operating efficiency or capacity for the remaining useful life of fixed assets are called:
a.
current expenditures
b.
revenue expenditures
c.
ordinary maintenance
d.
betterments
 

6. 

A fixed asset with a cost of $30,000 and accumulated depreciation of $27,500 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset?
a.
$2,500 loss
b.
$1,000 loss
c.
$2,500 gain
d.
$1,000 gain
 

7. 

A fixed asset with a cost of $32,000 is traded for a similar asset priced at $42,000. Assuming accumulated depreciation of $28,000 and a trade-in allowance of $2,000, what is the cost basis of the new asset?
a.
$44,000
b.
$41,000
c.
$42,000
d.
$40,000
 

8. 

When a company exchanges machinery and receives a trade-in allowance greater than the book value, this transaction would be recorded with the following entry:
a.
debit Machinery and Accumulated Depreciation; credit Machinery, Cash, and Gain on Disposal
b.
debit Machinery and Accumulated Depreciation; credit Machinery and Cash
c.
debit Cash and Machinery; credit Accumulated Depreciation
d.
debit Cash and Machinery; credit Accumulated Depreciation and Machinery
 

9. 

All leases are classified as either:
a.
capital leases or long-term leases
b.
capital leases or operating leases
c.
operating leases or current leases
d.
long-term leases or current leases
 

10. 

The journal entry for recording an operating lease payment would:
a.
be a memo entry only
b.
debit the fixed asset and credit Cash
c.
debit an expense and credit Cash
d.
debit a liability and credit Cash
 

11. 

Which one of the following is not an internal control procedure for fixed assets?
a.
ensuring that fixed assets are acquired at the lowest possible costs
b.
training employees to properly operate fixed assets
c.
tagging assets as they are acquired
d.
recording assets in the subsidiary ledger only at year end
 

12. 

The accumulated depletion account is:
a.
an expense account
b.
an intangible asset account
c.
reported on the income statement as other expense
d.
reported on the balance sheet as a deduction from the cost of the mineral deposit
 

13. 

Which of the following is classified as an intangible asset on the balance sheet?
a.
Goodwill
b.
Buildings
c.
Machinery
d.
Land Held for Future Use
 

14. 

Patents are reported on the balance sheet in the:
a.
intangible assets section
b.
current assets section
c.
property, plant, and equipment section
d.
investments section
 

15. 

Fixed assets are ordinarily presented in the balance sheet:
a.
at current market values
b.
at replacement costs
c.
at cost less accumulated depreciation
d.
in a separate section along with intangible assets
 

16. 

Current liabilities are:
a.
due, but not receivable for more than one year
b.
due, but not payable for more than one year
c.
due and receivable within one year
d.
due and payable within one year
 

17. 

On June 6, Apex Co. issued an $80,000, 8%, 120-day note payable to Jones Co.  What is the maturity value of the note?
a.
$82,100.00
b.
$88,233.33
c.
$82,133.33
d.
$86,840.00
 

18. 

The interest deducted from the maturity value of a note is called:
a.
proceeds
b.
discount
c.
face value
d.
maturity value
 

19. 

The journal entry a company uses to record the issuance of a note for the purpose of converting an existing account payable would be:
a.
debit Accounts, Payable; credit Cash
b.
debit Cash; credit Accounts Payable
c.
debit Accounts Payable; credit Notes Payable
d.
debit Cash; credit Notes Payable
 

20. 

An employee receives an hourly rate of $25, with time and a half for all hours worked in excess of 40 during a week.  Payroll data for the current week are as follows: hours worked, 42; federal income tax withheld, $350; cumulative earnings for year prior to current week, $59,700; social security tax rate, 6.0% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings.  What is the net amount to be paid the employee?
a.
$725.00
b.
$702.50
c.
$1,052.50
d.
$690.88
 

21. 

For which of the following taxes is there no ceiling on the amount of employee annual earnings subject to the tax?
a.
only FICA tax
b.
only federal income tax
c.
only federal unemployment compensation tax
d.
only state unemployment compensation tax
 

22. 

Prior to the last weekly payroll period of the calendar year, the cumulative earnings of employees A and B are $59,250 and $21,000 respectively.  Their earnings for the last completed payroll period of the year are $850 each.  The amount of earnings subject to social security tax at 6.2% is $60,000.  All earnings are subject to Medicare tax of 1.45%.  Assuming that the payroll will be paid on January 3, what will be the employer's total FICA tax for this payroll period on the two salary amounts of $850 each?
a.
$52.70
b.
$0
c.
$130.05
d.
$65.03
 

23. 

The amount of earnings subject to social security tax at 6.2% is $76,200.  All earnings are subject to a 1.45% Medicare tax.  Prior to the current pay period, Employee A has cumulative earnings of $76,000.  Employee A's earnings paid on December 30 for the current period are $1,100.  The employer's total FICA tax expense for Employee A for the entire year is:
a.
$4,724.40
b.
$1,117.95
c.
$5,842.35
d.
$4,500
 

24. 

The detailed record indicating the data for each employee for each payroll period and the cumulative total earnings for each employee is called the:
a.
payroll register
b.
payroll check
c.
employee's earnings record
d.
employer's earnings record
 

25. 

An employee receives an hourly rate of $15, with time and a half for all hours worked in excess of 40 during the week. Payroll data for the current week are as follows: hours worked, 44; federal income tax withheld, $120; cumulative earnings for the year prior to this week, $24,500; Social security tax rate, 6.15% on maximum of $60,000; and Medicare tax rate, 1.5% on all earnings; federal unemployment compensation tax, 5.4% on the first $7,000. What is the net amount to be paid the employee?
a.
$448.51
b.
$434.10
c.
$517.22
d.
$474.43
 

26. 

Which of the following is an example of a variable component of a payroll system?
a.
hours worked
b.
Medicare tax rate
c.
rate of pay
d.
Social security tax rate
 

27. 

An aid in internal control over payrolls that indicates employee attendance is:
a.
"In and Out" card
b.
voucher system
c.
payroll register
d.
employee's earnings record
 

28. 

During its first year of operations, a company granted employees vacation privileges and pension rights estimated at a cost of $22,500 and $18,000.  The vacations are expected to be taken in the next year and the pension rights are expected to be paid in the future 5-30 years.  What is the total cost of vacation pay and pension rights to be recognized in the first year?
a.
$28,500
b.
$0
c.
$40,500
d.
$22,500
 

29. 

A pension plan which promises employees a fixed annual pension benefit, based on years of service and compensation, is called a(n):
a.
defined contribution plan
b.
defined benefit plan
c.
unfunded plan
d.
funded plan
 

30. 

The journal entry a company uses to record partially funded pension rights for its salaried employees, at the end of the year, is:
a.
debit Salary Expense; credit Cash
b.
debit Pension Expense; credit Unfunded Pension Liability
c.
debit Pension Expense; credit Unfunded Pension Liability and Cash
d.
debit Pension Expense; credit Cash
 

31. 

Which of the following is characteristic of a corporation?
a.
The financial loss that a stockholder may suffer from owning stock in a public company is unlimited.
b.
Cash dividends paid by a corporation are deductible as expenses by the corporation.
c.
A corporation can own property in its name.
d.
Corporations are not required to file federal income tax returns.
 

32. 

One of the main disadvantages of the corporate form is:
a.
professional management
b.
double taxation of dividends
c.
the charter
d.
a corporation must issue stock
 

33. 

Stockholders' equity:
a.
is usually equal to cash on hand
b.
includes paid-in capital and liabilities
c.
includes retained earnings and paid-in capital
d.
is shown on the income statement
 

34. 

If a corporation issues only one class of stock, it is called:
a.
common stock
b.
treasury stock
c.
no-par stock
d.
preferred stock
 

35. 

Preferred stock that provides for the payment of preferred dividends that have been passed (are in arrears) before dividends may be paid on common stock is called:
a.
par
b.
cumulative
c.
no-par
d.
participating
 

36. 

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?
a.
5,000
b.
35,000
c.
45,000
d.
55,000
 

37. 

Which of the following accounts is reported in the stockholders' equity section of the corporate balance sheet?
a.
Cash
b.
Stock Dividends
c.
Organization Costs
d.
Preferred Stock
 

38. 

The entry to record the issuance of common stock at a price above par includes a debit to:
a.
Organization Costs
b.
Common Stock
c.
Cash
d.
Paid-In Capital in Excess of Par-Common Stock
 

39. 

Amos Company acquired land in exchange for 10,000 shares of its $10 par common stock.  The fair market value of the land is not determinable, but the stock is widely traded and was selling for $25 per share when exchanged for the land.  At what amount should the land be recorded by Amos Company?
a.
$150,000
b.
$250,000
c.
$350,000
d.
$100,000
 

40. 

Which of the following accounts is reported in the stockholders' equity section of the corporate balance sheet?
a.
Organization Costs
b.
Common Stock
c.
Dividends in Arrears
d.
Cash
 

41. 

The excess of par over issue price is termed a:
a.
discount
b.
contra asset
c.
deficit
d.
premium
 

42. 

What is the total stockholders' equity based on the following data?

Common Stock
$900,000
Excess of Issue Price Over Par
375,000
Retained Earnings (deficit)
50,000
a.
$1,200,000
b.
$1,225,000
c.
$1,275,000
d.
$1,325,000
 

43. 

The excess of sales price of treasury stock over its cost should be credited to:
a.
Treasury Stock Receivable
b.
Premium on Capital Stock
c.
Paid-In Capital from Sale of Treasury Stock
d.
Income from Sale of Treasury Stock
 

44. 

What is the total stockholders' equity based on the following account balances?

Common Stock
$500,000
Paid-In Capital in Excess of Par
40,000
Retained Earnings
190,000
Treasury Stock
20,000
a.
$540,000
b.
$630,000
c.
$710,000
d.
$750,000
 

45. 

In which section of the balance sheet would Treasury Stock be reported?
a.
Fixed assets
b.
Long-term liabilities
c.
Stockholders' equity
d.
Intangible assets
 

46. 

A company with 100,000 authorized shares of $5 par common stock issued 40,000 shares at $7.  Subsequently, the company declared a 2% stock dividend on a date when the market price was $9 a share.  The effect of the declaration and issuance of the stock dividend is to:
a.
decrease retained earnings, increase common stock, and increase paid-in capital
b.
increase retained earnings, decrease common stock, and decrease paid-in capital
c.
increase retained earnings, decrease common stock, and increase paid-in capital
d.
decrease retained earnings, increase common stock, and decrease paid-in capital
 

47. 

The liability for a dividend is recorded on which of the following dates?
a.
the date of record
b.
the date of payment
c.
the date of announcement
d.
the date of declaration
 

48. 

The entry to record the declaration of a common stock dividend would include a debit to:
a.
Common Stock
b.
Accounts Receivable
c.
Stock Dividends
d.
Cash
 

49. 

The entry to record the issuance of stock certificates for a common stock dividend that had been declared would include a credit to:
a.
Common Stock
b.
Retained Earnings
c.
Stock Dividends Distributable
d.
Cash
 

50. 

A high dividend yield as opposed to market price appreciation would be most desired by investors who were:
a.
in a high marginal tax bracket
b.
in a low marginal tax bracket
c.
indifferent as to their marginal tax bracket because dividends are not taxed to the individual
d.
willing to take higher than normal risks
 



 
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