ACCT 201 Principles of Financial Accounting
Practice Exam #2
Combined Chapters 5-8
Dr. Fred Barbee
Part I: Multiple-Choice Questions
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1. Beginning inventory is 10 units purchased at a cost of $10 each. The first purchase is 20 units at $12 each. When 12 units are sold, using FIFO perpetual inventory, what is the cost of the 12 units that were sold?
a.  $120
b.  $124
c.  $128
d.  $130
e.  $140
2. On December 31 a company needed to estimate its ending inventory to prepare its fourth quarter financial statements. The following information is currently available:

Inventory as of October 1:
$12,500
Net sales for fourth quarter:
40,000
Net purchases for fourth quarter:
$27,500

The company typically achieves a gross profit rate of 15%. Ending inventory under the gross profit method would be:

a.  $6,000
b.  $4,000
c.  $10,000
d.  $16,000
e.  $34,000
3. Beginning inventory totaled 5 units purchased at a cost of $20 each. The first purchase was 10 units at $22 each and the second purchase was 6 units at $25 each. When 8 units were sold for $350 retail, using LIFO perpetual inventory, what was the value of the ending inventory?

a.  $304
b.  $296
c.  $288
d.  $280
e.  $276
4. A company records purchases using the net method. It purchased merchandise inventory on account for $8,300 with terms of 1/10, n/30. The journal entry to record this transaction would include a:
a.  Debit to Merchandise Inventory of $8,300.
b.  Debit to Merchandise Inventory of $83.
c.  Debit to Merchandise Inventory of $8,217.
d.  Credit to Merchandise Inventory of $83.
e.  Credit to Accounts Payable of $8,300.
5. An expense resulting from failing to take advantage of cash discounts on purchases is called:
a.  Sales Discounts.
b.  Trade Discounts.
c.  Purchases Discounts
d.  Discounts Lost.
e.  Discounts Earned.
6. The most serious limitation of internal control is:
a.  Computer error.
b.  Human fraud or human error.
c.  Cost-Benefit principle.
d.  No internal control system is perfect.
e.  Management fraud.
7. An accounting procedure that (1) estimates and reports bad debts expense from credit sales during the period of the sales; and (2) reports accounts receivable at the amount of cash proceeds that is expected from their collection is the:
a.  Allowance method of accounting for bad debts.
b.  Aging of notes receivable.
c.  Direct write-off method of accounting for bad debts.
d.  Adjustment method for uncollectible debts.
e.  Cash basis method of accounting for bad debts.
8. Available-for-sale securities:
a.  Can be either debt or equity securities.
b.  Are not actively managed and traded.
c.  Are purchased to earn interest, dividends, and/or for value appreciation.
d.  Are securities not classified as trading or held-to-maturity.
e.  All of the above.
9. If the balance of the Allowance for Doubtful Accounts account exceeds the amount of a bad debt being written off, the entry to record the write-off against the allowance account results in:
a.  An increase in the expense of the current period.
b.  A reduction in current assets.
c.  A reduction in equity.
d.  No effect on the expenses of the current period.
e.  A reduction in current liabilities.
10. A company purchased a tract of land for its natural resources at a cost of $1,500,000. It expects to mine 2,000,000 tons of ore from this land. The salvage value of the land is expected to be $250,000. The depletion expense per ton of ore is:
a.  $0.75
b.  $0.625
c.  $0.875
d.  $6.00
e.  $8.00
11. A depreciation method in which a plant asset's depreciation charge for the period is determined by applying a constant depreciation rate each period to the asset's beginning book value is called:
a.  Book value depreciation.
b.  Units-of-production depreciation.
c.  Straight-line depreciation.
d.  Declining-balance depreciation.
e.  Modified accelerated cost recovery system (MACRS) depreciation.
12. Depreciation:
a.  Measures the decline in market value of an asset.
b.  Measures the physical deterioration of an asset.
c.  Is the process of allocating to expense the cost of a plant asset.
d.  Is an outflow of cash from the use of a plant asset.
e.  Is applied to land.

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Part II: Short Problems

Short Problem #1

A company made the following merchandise purchases and sales during the month of July:

July 1 Purchased 380 units @ $15 each
July 5 Purchased 270 units @ $20 each
July 9 Sold 500 units @ $55 each
July 14 Purchased 300 units @ $24 each
July 20 Sold 250 units @ $55 each
July 30 Purchased 250 units @ $30 each

There was no beginning inventory. If the company uses the first-in, first-out method and the perpetual method what would be the cost of the ending inventory?

Short Problem #2

A company has the following unadjusted account balances at December 31 of the current year. Accounts Receivable of $185,700 and Allowance for Doubtful Accounts of $1,600 (credit balance). This company uses the aging of accounts receivable to estimate its bad debts. The following aging schedule reflects its accounts receivable at the current year-end:

Account Age
Age Group
Balance
Estimated
Uncollectible
Percentage
Current (not yet due)
$96,000
1.5%
1-30 days past due
64,000
4.0
31-60 days past due
16,000
10.0
61-90 days past due
6,400
40.0
Over 90 days past due
3,200
65.0
Total
$185,600
 

Required:

  1. Calculate the amount of the Allowance for Doubtful Accounts that should appear on the December 31 of the current year balance sheet.

  2. Prepare the adjusting journal entry to record bad debts expense for the current year.

Short Problem #3

On January 1, a machine costing $230,000 with a 4-year useful life and an estimated $3,000 salvage value was purchased. It was also estimated that the machine would produce 500,000 units during its life. The actual units produced during its first year of operation were 90,000. Determine the amount of depreciation expense for the first year under each of the following assumptions:

  1. The company uses the straight-line method of depreciation.
  2. The company uses the units-of-production method of depreciation.
  3. The company uses the double-declining-balance method of depreciation.

Part III: Problems

On April 1, 2005, a company disposed of equipment for $14,200 cash that had cost $35,000 on January 1, 2001. The equipment had a salvage value of $5,000 and a useful life of 10 years. The double-declining-balance depreciation method was used. On December 31, 2004, accumulated depreciation was $20,664. Prepare a journal entry to record depreciation for 2005 up to the date of disposal of the equipment. Prepare a journal entry to record the disposal of the equipment.

         

Last Modified September 19, 2002