Question 1

A company purchases equipment for $$96,000, with a residual value of 6$$,000 and a useful life of 8 years. What is the annual straight-line depreciation expense? Use the formula $$	ext{Depreciation Expense} = \frac{	ext{Cost} - 	ext{Residual Value}}{	ext{Useful Life}}.$$

Accepted Answer

$$11,250$$

Question 2

Which of the following is an example of an intangible asset?

Accepted Answer

Trademark

Question 3

During a period of rising inventory costs, which inventory costing method will generally result in the lowest cost of goods sold (COGS)?

Accepted Answer

FIFO

Question 4

A retailer buys $$48,000 of inventory on account, terms 2/10, n/30, and returns 3$$,000 before paying. If the retailer pays on day 8, what is the cash payment? Use the formula $$	ext{Discount} = (	ext{Purchase} - 	ext{Return}) 	imes 0.02$$ and $$	ext{Cash Payment} = (	ext{Purchase} - 	ext{Return}) - 	ext{Discount}.$$

Accepted Answer

$$44,100.00$$

Question 5

Prairie Outfitters reports net sales of $$960,000, gross profit of 360$$,000, beginning inventory of $$70,000, and ending inventory of 90$$,000. What is the cost of goods sold (COGS)? Use the formula $$	ext{Gross Profit} = 	ext{Net Sales} - 	ext{COGS}.$$

Accepted Answer

$$600,000$$

Question 6

A company uses the allowance method for bad debts. If Accounts Receivable is $$120,000 and Allowance for Bad Debts is 3$$,100 (credit balance), and the required ending allowance is $7,400, what is the adjusting entry amount for Bad Debts Expense?

Accepted Answer

$$4,300$$

Question 7

On November 1, Year 1, a company accepts a $$24,000, 6%, six-month note from a customer. What is the total interest earned on the note at maturity? Use the formula $$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes \frac{	ext{Time}}{12}$.

Accepted Answer

$$1,440$$

Question 8

A company’s bank reconciliation at June 30 shows a deposit in transit of $$2,200 and outstanding checks of 1$$,750. The bank statement balance is $$14,850. What is the adjusted bank balance? Use the formula $$	ext{Adjusted Bank Balance} = 	ext{Bank Statement Balance} + 	ext{Deposit in Transit} - 	ext{Outstanding Checks}$.

Accepted Answer

$$15,950$$

Question 9

If ending inventory is overstated by $4,200, what is the effect on cost of goods sold (COGS) and net income for the current year?

Accepted Answer

COGS is understated and net income is overstated

Question 10

Which of the following expenditures should be capitalized rather than expensed?

Accepted Answer

An equipment upgrade that extends useful life by four years

Question 11

A company sells merchandise for $$9,000 on account (cost 5$$,400). The customer returns goods with a selling price of $$1,500 (cost 900). $$What is the correct journal entry to record the return under a perpetual inventory system?

Accepted Answer

Debit Sales Returns and Allowances $$1,500; Credit Accounts Receivable 1$$,500; Debit Inventory $$900; Credit Cost of Goods Sold 900$$

Question 12

Which of the following best describes the materiality concept in accounting?

Accepted Answer

Only items that are large enough to influence decisions should be treated strictly according to GAAP

Question 13

A company uses the double-declining-balance method to depreciate equipment costing $$40,000 with a 5-year life and 2$$,000 residual value. What is the depreciation expense for the first year? Use the formula $$	ext{DDB Rate} = \frac{2}{	ext{Useful Life}}$$ and $$	ext{Depreciation} = 	ext{Book Value} 	imes 	ext{DDB Rate}.$$

Accepted Answer

$$16,000$$

Question 14

Which of the following is a characteristic of a plant asset?

Accepted Answer

Used in business operations over multiple periods

Question 15

A company’s multi-step income statement shows Sales Revenue $$450,000, Sales Returns and Allowances 12$$,000, and Sales Discounts $$3,000. What are net sales? Use the formula $$	ext{Net Sales} = 	ext{Sales Revenue} - 	ext{Sales Returns and Allowances} - 	ext{Sales Discounts}$.

Accepted Answer

$$435,000$$

Question 16

Which of the following is NOT a purpose of internal control?

Accepted Answer

Eliminating every possible loss

Question 17

A company writes off a $4,600 receivable under the allowance method, then later collects the full amount. What is the correct sequence of entries?

Accepted Answer

Reinstate the receivable, then record the collection

Question 18

Which of the following best measures inventory management efficiency?

Accepted Answer

Inventory turnover and days sales in inventory

Question 19

A company accepts a $$24,000, 6%, six-month note on November 1, Year 1. How much interest revenue should be accrued at December 31, Year 1? Use the formula $$	ext{Interest} = 	ext{Principal} 	imes 	ext{Rate} 	imes \frac{	ext{Time}}{12}$.

Accepted Answer

$$480$$

Question 20

Which of the following is a common cost of accepting customer credit cards?

Accepted Answer

A processor service fee

Question 21

Which asset is subject to depletion?

Accepted Answer

Timber tract

Principles of Accounting Exam 2 Study Review: Step-by-Step Guidance

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