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Archer Company and Zorro Company

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1) GAAP prefers companies to use the:
A) direct write-off method to evaluate bad debts.
B) allowance method to evaluate bad debts.
C) amortization method to evaluate bad debts.
D) 360-day method to evaluate bad debts.
2) Which of the following is included in the category Other receivables?
A) Loans to employees
B) Accounts receivables
C) Notes receivables
D) Investments

3) Which of the following are the two methods of accounting for uncollectible receivables?
A) The direct write-off method and the liability method
B) The asset method and the sales method
C) The allowance method and the liability method
D) The allowance method and the direct write-off method

4) The Allowance for uncollectible accounts currently has a credit balance of $200. The company's management estimates that 2.5% of net credit sales will be uncollectible. Net credit sales are $115,000. What will be the amount of Uncollectible account expense reported on the income statement?
A) $3,275
B) $3,075
C) $2,875
D) $2,675

5) A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart Art uses the percent-of-sales method to account for uncollectible account expense, and has decided to use a factor of 2% for their year-end adjustment of uncollectible account expense. At the end of the year, what is the ending balance in Accounts receivable?
A) $4,000
B) $36,000
C) $3,350
D) $39,350

6) A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart Art uses the aging method to account for uncollectible account expense, and has calculated an amount of $200 as their estimate of uncollectible amounts at year-end. At the end of the year, what is the ending balance in the Allowance for uncollectible accounts?
A) $150
B) $800
C) $200
D) $1,450

7) A newly created design business called Smart Art is just finishing up its first year of operations. During the year, there were credit sales of $40,000 and collections of $36,000. One account for $650 was written off. Smart Art uses the aging method to account for uncollectible account expense, and has calculated an amount of $200 as their estimate of uncollectible amounts at year-end. At the end of the year, what is the ending balance in Accounts receivable?
A) $4,000
B) $36,000
C) $3,350
D) $39,350

8) Accounts receivable has a balance of $16,000 and the Allowance for uncollectible accounts has a credit balance of $1,700. What is Net accounts receivable before and after a $60 account receivable is written off?
A) $14,300 before and $14,240 after
B) $14,300 before and $14,300 after
C) $16,000 before and $15,940 after
D) $16,000 before and $16,000 after

9) Under the direct write-off method, a customer who doesn't pay their bills is written off with what journal entry?
A) Debit Accounts receivable and credit Uncollectible account expense
B) Debit Uncollectible account expense and credit Cash
C) Debit Uncollectible account expense and credit Accounts receivable
D) Debit Lost revenue and credit Accounts receivable

10) Archer Company and Zorro Company both have significant amounts of accounts receivable at any time, and both experience uncollectible accounts from time to time. Archer uses the percent-of-sales method to account for uncollectible accounts, and Zorro uses the direct write-off method. Which of the following statements is FALSE?
A) Zorro Company's method complies with GAAP.
B) Archer Company's method will provide better matching of revenues and expenses.
C) Archer Company's net income is more accurate due to their accounting method.
D) Zorro Company's method does not provide good matching of revenues and expenses.

11) Which of the following is included in the denominator of the acid-test ratio?
A) All current liabilities except accounts payable
B) Total liabilities
C) Total current liabilities
D) Total current assets

12) Which of the following exists if the maker of a promissory note fails to pay the note on the due date?
A) A discounted note
B) A depreciated note
C) An amortized note
D) A dishonored note

13) What is the maturity value of a 3-month, 12% note for $20,000?
A) $20,000
B) $22,400
C) $21,200
D) $20,600

14) What is the maturity value of a note?
A) The principal amount minus interest due
B) The principal amount plus interest due
C) The face amount of the note
D) The principal amount times the interest rate

15) On October 1, 2014, Allen Jewelry Company accepted a 4-month, 10% note for $2,400 in settlement of an overdue account receivable. If the company accrues interest at year-end only, how much interest revenue should be accrued on December 31, 2014?
A) $80
B) $60
C) $240
D) $40

16 ) On September 1, 2012, Algernon Company sold a truck for $15,000 cash. The truck was originally purchased for $40,000, had an estimated salvage value of $4,000 and an estimated life of 6 years. Algernon had recorded depreciation of $30,000 through the end of 2011 using Straight-Line. First, Algernon had to update the depreciation prior to sale. Then Algernon recorded the sale transaction. What was the effect of that transaction on the net income of the company?
A) No gain or loss
B) Gain of $9,000
C) Gain of $15,000
D) Loss of $9,000

17) Which of the following is included in the cost of a plant asset?
A) Amounts paid to ready the asset for its intended use
B) Regular maintenance cost
C) Normal repair cost
D) Wages of workers who use the asset

18) Which of the following would be capitalized and depreciated, rather than expensed?
A) Modification for new use
B) Paint job
C) Replacement of tires
D) Normal repair of engine

19) Which of the following items should NOT be depreciated, depleted, or amortized?
A) Natural resources
B) Land
C) Tangible property, plant, and equipment, other than land
D) Intangible property


20) On January 1, 2013, Zane Manufacturing Company purchased a machine for $40,000. The company expects to use the machine a total of 24,000 hours over the next 6 years. The estimated sales price of the machine at the end of 6 years is $4,000. The company used the machine 8,000 hours in 2013 and 12,000 in 2014.

What is the book value of the machine at the end of 2014 if the company uses straight-line depreciation?
A) $10,000
B) $28,000
C) $17,778
D) $20,000


21) Which of the following items is included in the journal entry if a company sells equipment at a price equal to its book value?
A) A debit to Loss on sale of equipment
B) A credit to Equipment for its original cost
C) A credit to Accumulated depreciation
D) A debit to Equipment for its book value

22) Which of the following items should be depleted?
A) Intangible property
B) Land
C) Natural resources
D) Tangible property, plant, and equipment, other than land

23) Azimuth Company purchases a small business for $500,000. The market value of the business's assets are $850,000, and the market value of the liabilities are $400,000. How much goodwill should Azimuth record?
A) None
B) $500,000
C) $450,000
D) $50,000

24) The decline in value of a copyright is accounted for by:
A) depreciation.
B) amortization.
C) depletion.
D) deterioration.

25) Which of the following intangible assets bars other manufacturers from using the same name for a product?
A) Trademark
B) Patent
C) Copyright
D) Franchise

26) Which of the following accounting methods is usually used to compute amortization expense?
A) Declining-balance
B) Units-of-production
C) Straight-line
D) First-In, First-Out




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