Accounting Skills Test (Assets and Revenue)

Which of the following costs would NOT be included in the cost of machinery?

a. Invoice price

b. Installation costs

c. Testing of machinery prior to its intended use

d. All of the above would be included.

When an asset impairment occurs, a company writes down the asset to __________.

a. the sum of its undiscounted cash flows

b. its then-current fair value

c. zero

d. None of the above

A fast food restaurant chain sells a division that operates movie theaters. What type of activity is this?

a. Primary operating activity, which is recurring

b. Primary operating activity, which is nonrecurring

c. A recurring activity, which is peripheral to primary operations

d. A nonrecurring activity, which is peripheral to primary operations

When all else is equal, analysts ___________.

a. prefer that firms have high recurring earnings

b. will give a higher valuation to a firm with a one-time charge than to a firm that reports an expense that continues year to year

c. regard recurring earnings as higher quality than one-shot earnings

d. All of the above

XYZ Company reports Accounts Receivable of $60,000 and an Allowance for Uncollectible Accounts of $6,000 on its December 31 Year 1 Balance Sheet. During Year 2, credit sales total $1,800,000, collections on account total $1,680,000, and write-offs total $9,600. After aging its Accounts Receivable, XYZ Company estimates that 10 percent of its Accounts Receivable at December 31 of Year 2 will be uncollectible. What is the balance in Accounts Receivable on December 31 of Year 2?

a. $164,400

b. $166,800

c. $170,400

d. $174,000

When the _________ method is used to estimate uncollectible accounts, the balance in the Allowance for Uncollectible Accounts is adjusted to reflect the desired ending balance.

a. AP Aging

b. Uncollectible Forecasting

c. Progressive Aging

d. Aging of Accounts Receivable

When using the indirect method to determine operating cash flows in a cash flow statement, which of the following would be deducted from net income?

a. Gain on retirement of a plant asset

b. Depreciation

c. Loss on retirement of a plant asset

d. None of the above

Which of the following is a functional factor in determining depreciation?

a. Salvage value

b. Obsolescence

c. Market cost

d. Market value

Which of the following is a characteristic of grouping assets into one of seven life classes?

a. Sum-of-the-years digits method

b. Modified accelerated cost recovery system

c. Declining balance method

d. None of the above

XYZ Company had sales of $585,000 during Year 1, $260,000 of which were on account. The account balances in Accounts Receivable and in Allowance for Uncollectible Accounts on December 31 of Year 1 were $78,000 and $10,400 respectively. Past experience indicates that 5 percent of all credit sales will not be collected. An aging of accounts indicated that $19,500 of the receivable balance would not be collected. How much should XYZ Company debit to the Bad Debt Expense Account?

a. $29,900

b. $13,000

c. $19,500

d. $9,100

XYZ Company reports its net assets at a book value of $150,000. Investigation reveals that the net assets had a market value of $175,000. In addition, XYZ Company had been offered $220,000 for the company by ABC Company. What is the amount of goodwill that should be recorded on the books of XYZ Company?

a. $0

b. $25,000

c. $45,000

d. $70,000

Late in Year 1, XYZ Company signs a contract to construct a bridge for the Florida Dept. of Transportation. The contract price is $42,000,000. The costs during the 3-year construction period are as follows:

Year 2: $10,000,000
Year 3: $15,000,000
Year 4: $5,000,000

If XYZ Company recognizes income under the percentage-of-completion method, how much income would they recognize on the bridge contract in Year 3?

a. $21,000,000

b. $12,000,000

c. $10,000,000

d. $6,000,000

If a reasonable estimate of the amount of cash to be received can be made, when should revenue be recognized?

a. At the time of sale

b. At the time of cash collection

c. At the time of cash collection, using the cost-recovery-first method

d. None of the above

Which of the following basic patterns would be appropriate for allocation of land?

a. Expense immediately

b. Straight line depreciation

c. Decelerated depreciation

d. No depreciation

The sum-of-the-years digits method is an example of a/an ____________.

a. accelerated method

b. double declining method

c. MACRS

d. straight line method

XYZ Company generates five new products in 2008. The interest capitalized for these items is referred to as ____________.

a. self-constructed assets

b. purchased fixed assets

c. fully depreciated assets

d. expensed purchases

XYZ Company owns machinery with a cost of $100,000 and an accumulated depreciation of $60,000 on January 1, 2007. On July 1, 2007, the machinery is sold for $43,000. The straight line depreciation method has been used during the previous six years of life. How much gain or loss will be recorded on the sale?

a. $3,000 gain

b. $13,000 gain

c. $22,000 gain

d. $8,000 gain

On its December 31 Balance Sheet in Year 1, XYZ Company reports Accounts Receivable of $60,000 and an Allowance for Uncollectible Accounts of $6,000. During Year 2, credit sales total $1,800,000, collections on account total $1,680,000, and write-offs total $9,600. After aging its Accounts Receivable, XYZ Company estimates that 10 percent of its Accounts Receivable at December 31 of Year 2 will be uncollectible.
Given the above data, what amount would XYZ Company report as Bad Debt Expense in its Year 2 Income Statement?

a. $17,040

b. $18,000

c. $21,600

d. $20,640

Natural resources are referred to as ____________.

a. Intangible assets

b. Plant assets

c. Wasting assets

d. None of the above

The situation in which a company uses its accounts receivable to obtain a loan is called ___________. In this process, the company usually maintains control of the receivables, collects from customers, and forwards the proceeds to the lending institution to liquidate the loan.

a. Assigning

b. Factoring

c. Sales

d. Pledging

What is the proper accounting for all research and development costs when incurred?

a. Capitalize

b. Liability

c. Expense

d. Asset

When using the indirect method to determine operating cash flows in a cash flow statement, which of the following would be added to net income?

a. Amortization

b. Depreciation

c. Loss on retirement of a plant asset

d. All of the above

In the indirect method, which of the following is included in the cash flow from investing activities?

a. Proceeds from the retirement of plant assets

b. Amortization

c. Depreciation

d. Net Income

Which of the following events reduces total assets?

a. A customer returns merchandise for credit.

b. Uncollectible accounts are written off under the allowance method.

c. An accounts receivable is collected.

d. None of the above

The denominator of the sum-of-the-years digits fraction is ______________.

a. n+n

b. n/2

c. n+1/2

d. n(n+1)/2

XYZ Company purchases a piece of equipment on January 1, 2007 at a cost of $100,000. The equipment has a five-year useful life and can be sold for $10,000 at the end of five years. If XYZ Company uses the 200% percent declining balance depreciation method, how much depreciation would be recorded in the second year?

a. $12,000

b. $20,000

c. $15,900

d. None of the above

In which of the following depreciation methods is the estimate of useful life NOT required?

a. Straight line

b. Sum-of-the-years digits

c. 200% declining balance

d. MACRS

What occurs when the then-current book value of an asset exceeds the sum of expected undiscounted cash flow?

a. Salvage

b. Fair value

c. Impairment

d. Depletion

When managers choose estimates that lead to higher current income, analysts refer to those earnings as ____________.

a. higher quality of earnings

b. at par

c. off budget

d. lower quality of earnings

The matching of costs with the benefits derived from the use of an asset is ____________.

a. the goal of depreciation accounting for financial statement purpose

b. expensing

c. GAAP

d. FASB

An asset impairment occurs when the then-current book value of an asset exceeds _________.

a. the sum of expected undiscounted cash flows of the asset

b. the market value of the asset

c. the discounted future cash flows of the asset

d. None of the above

Which of the following costs is capitalized for a self-constructed asset?

a. Interest prior to construction

b. Interest during construction

c. Interest after construction

d. All of the above

Early in Year 1, XYZ Company begins construction of an office building. The contract price for the construction is $23,400,000. The project, which is completed in Year 3, incurs costs as follows:

Year 1: $5,200,000
Year 2: $6,500,000
Year 3: $3,900,000
If XYZ Company recognizes income under the completed contract method, how much income would they recognize on the office building contract in Year 3?

a. $1,950,000

b. $3,900,000

c. $5,850,000

d. $7,800,000

Which of the following life spans would be used for automobiles if the MACRS method of depreciation is employed?

a. 3 years

b. 5 years

c. 10 years

d. 15 years

XYZ Company purchases a machine with a cost of $20,000, a salvage value of $2,000, and life of five years. If the company uses the sum-of-the-years digits method, what would the depreciation charge be for the first year?

a. $1,200

b. $6,000

c. $6,667

d. $8,000

On January 1, 2007, XYZ Company has machinery on the books that originally cost $200,000. In 2007, the following expenditures were made:
Minor Repairs: $5,000
IMproveMents: $10,000
Additions: $37,000
Given the above data, how much would be recorded in the Machinery Account on December 31,2007?

a. $252,000

b. $247,000

c. $235,000

d. $225,000

A Florida hotel chain's properties located on the Emerald Coast are destroyed when the area is devastated by an earthquake. What type of activity is this?  

a. Primary operating activity, which is recurring

b. Primary operating activity, which is nonrecurring

c. A recurring activity, which is peripheral to primary operations

d. A nonrecurring activity, which is peripheral to primary operations

Late in Year 1, XYZ Company signs a contract to construct a bridge for the Florida Dept. of Transportation. The contract price is $42,000,000. The costs during the 3-year construction period are as follows:

Year 2: $10,000,000
Year 3: $15,000,000
Year 4: $5,000,000
If XYZ Company recognizes income under the percentage-of-completion method, how much income would they recognize on the bridge contract in Year 4?

a. $0

b. $2,000,000

c. $7,000,000

d. $12,000,000

XYZ Company had sales of $585,000 during Year 1, $260,000 of which were on account. The account balances in Accounts Receivable and in Allowance for Uncollectible Accounts on December 31 of Year 1 were $78,000 and $10,400 respectively. Past experience indicates that 5 percent of all credit sales will not be collected. How much should XYZ Company debit to the Bad Debt Expense Account?

a. $39,000

b. $13,000

c. $6,500

d. 26,000

Assets that can provide future benefits without having physical form are called ___________.

a. fixed assets

b. cash

c. intangible assets

d. accounts receivable