Final Practice Exam

A food truck business (illustrative) pays $84,000 for a truck it plans to operate for 7 years. Why does it spread the truck's cost across those years as depreciation instead of expensing all $84,000 in the year of purchase?

Select one.

• Because the truck's resale value drops by an equal amount every year
• Because the cost is matched to the years in which the truck helps earn revenue
• Because the business pays for the truck in seven equal yearly payments
• Because the cash for the truck leaves the bank a little at a time

A landscaping company (illustrative) depreciates its $40,000 pickup truck by straight-line at $6,000 a year. After 4 full years of use, it sells the truck for $17,000 cash. What does the company record on the sale?

Select one.

• A gain of $1,000
• A loss of $1,000
• A gain of $17,000
• A loss of $24,000

A dog-grooming service (illustrative) uses the allowance method and decides that a customer's $510 balance will never be collected. Which entry removes that balance from its books?

Select one.

• Debit Bad Debt Expense 510; credit Accounts Receivable 510
• Debit Accounts Receivable 510; credit Allowance for Doubtful Accounts 510
• Debit Bad Debt Expense 510; credit Allowance for Doubtful Accounts 510
• Debit Allowance for Doubtful Accounts 510; credit Accounts Receivable 510

A landscaping company (illustrative) wrote check No. 604 for $152 to pay a supplier on account, but its bookkeeper entered the check as $125. What entry fixes the company's books?

Select one.

• Debit Cash 27; credit Accounts Payable 27
• Debit Accounts Payable 152; credit Cash 152
• Debit Accounts Payable 125; credit Cash 125
• Debit Accounts Payable 27; credit Cash 27

For Year 3, a dog-grooming corporation (illustrative) reports net cash provided by operating activities of $38,000, net cash used by investing activities of $21,500, and net cash used by financing activities of $6,000. It began Year 3 with $15,000 of cash. How much cash does it have at the end of Year 3?

Select one.

• $10,500
• $80,500
• $37,500
• $25,500

True or false: a payroll clerk at a landscaping company (illustrative) can figure each worker's federal income tax withholding the way Medicare tax is figured, by applying one fixed percentage to gross pay.

True or false.

• True
• False

A landscaping company's (illustrative) crew member earns $22 an hour, is covered by the Fair Labor Standards Act and is not exempt, and works 47 hours in one workweek. What gross pay has the crew member earned for the week?

Select one.

• $1,034
• $880
• $1,551
• $1,111

A food truck business (illustrative) reconciles its bank account at the end of Month 7 and finds six reconciling items. Which of these items must the business record with a journal entry in its own books?

Select every option that applies.

• A customer's $425 check returned for not sufficient funds
• A $2,350 deposit made on the last day of the month that the bank has not yet credited
• An $18 monthly fee the bank took from the account
• Check No. 1047 for $615, written and recorded but not yet paid by the bank
• A $63 error in recording check No. 1039, which was written for $81 but recorded as $18
• The $7 of interest the bank added to the account

A tutoring business (illustrative) finds from its aging schedule that Allowance for Doubtful Accounts should end the year at $1,840. Before adjusting, the account already shows a $310 credit balance. How much bad debt expense belongs in the year-end entry?

Select one.

• $1,840
• $2,150
• $310
• $1,530

An illustrative food truck started its first month with no supplies and bought $1,250 of paper goods during the month. A count at month-end finds $480 of them on hand. Which adjusting entry does the truck record?

Select one.

• Debit Supplies Expense 770; credit Supplies 770
• Debit Supplies Expense 480; credit Supplies 480
• Debit Supplies 770; credit Supplies Expense 770
• Debit Supplies Expense 770; credit Cash 770 for the paper goods used

An illustrative hardware store uses a periodic system for one color of paint: beginning inventory of 20 cans at $10, a first purchase of 50 cans at $12, and a second purchase of 30 cans at $14. It sells 60 cans at $23 each. What is cost of goods sold under FIFO?

Select one.

• $680
• $780
• $540
• $720

A dog-grooming service (illustrative) records $1,600 of bad debt expense at year end, after which its balance sheet shows Accounts Receivable of $52,000 and Allowance for Doubtful Accounts of $2,080. What is the net realizable value of the receivables?

Select one.

• $52,000
• $49,920
• $50,400
• $54,080

A campus bookstore (illustrative) records one clerk's weekly payroll: gross pay $1,740.00; Social Security withheld $107.88; Medicare withheld $25.23; an illustrative $150.00 of federal income tax withheld; and net pay of $1,456.89 not yet handed to the clerk. Which accounts does this entry credit? Select every one that applies.

Select every option that applies.

• Payroll Tax Expense
• Wages Payable
• Federal Income Tax Payable
• Social Security Tax Payable
• Wages Expense
• Medicare Tax Payable

True or false: once a student looks up a public company's annual report filed with the SEC on EDGAR, that company's reported total assets become a figure the course's quizzes expect the student to know.

True or false.

• True
• False

Two founders want a form of business that is a legal entity apart from them, that issues shares to its owners, and whose owners have limited liability for its debts. Which form of business organization has those features?

Select one.

• A general partnership
• A corporation
• A sole proprietorship
• An owner-run business with no legal separation from its owner

A food distributor (illustrative) issues bonds with a $250,000 face value and an 8 percent stated rate that pay interest semiannually. Investors require a 9 percent market rate. How much cash interest does the distributor pay every six months?

Select one.

• $20,000
• $22,500
• $10,000
• $11,250

A dog-grooming service (illustrative) is sued by a customer who says a pet was hurt during a visit. The service's attorney judges that losing the case is reasonably possible but not probable. How should the service report the lawsuit?

Select one.

• It records a liability and a loss for the full amount sought
• It discloses the lawsuit in the notes without recording an amount
• It omits the lawsuit from both the statements and the notes
• It records a liability for half of the amount sought

True or false: a tutoring business (illustrative) tops up its petty cash box after its custodian paid for postage and printer paper, and the replenishing entry debits Postage Expense and Office Supplies Expense and credits Cash.

True or false.

• True
• False

At the end of its first month, an illustrative food truck's Cash T-account shows entries totaling $28,400 on the left side and $19,650 on the right side. What is the Cash balance?

Select one.

• $8,750, a credit balance
• $8,750, a debit balance
• $48,050, a debit balance
• $28,400, a debit balance

An illustrative landscaping company buys a $9,000 trailer that is expected to last 3 years, or 36 months, with no residual value. What is one month's depreciation, and which account is credited?

Select one.

• $3,000, credited to Accumulated Depreciation
• $250, credited to Cash
• $250, credited to Accumulated Depreciation
• $250, credited to Depreciation Payable, a liability

A small software firm (illustrative) weighs several actions involving its shares. Which of these would leave the firm's total stockholders' equity the same? Select every one that applies.

Select every option that applies.

• Issuing preferred stock for cash
• A 3-for-1 stock split
• Reacquiring shares as treasury stock
• Distributing a stock dividend
• Declaring a cash dividend

A small software firm (illustrative) has common stock with a $0.10 par value, and it sells new shares to investors for $14 each. What does the $0.10 figure represent?

Select one.

• The price an investor pays for one share
• The cash the firm keeps on hand for each share
• The dividend each share receives every year
• A legal amount per share stated in the charter

The top of an illustrative campus bookstore's multi-step income statement shows Sales Revenue of $9,400 less Cost of Goods Sold of $5,640. Select every statement that is true of that statement.

Select every option that applies.

• Gross profit of $3,760 is Sales Revenue minus Cost of Goods Sold
• The $3,760 of gross profit is the store's net income for the period
• Cost of Goods Sold is the cost of the goods sold, not of everything the store bought
• A $120 purchase discount the store took appears as a revenue line

In Month 3, the board of a bakery corporation (illustrative) declares a cash dividend of $0.35 a share on its 24,000 outstanding shares, payable in Month 4. What entry does the bakery make on the day the dividend is declared?

Select one.

• Debit Dividend Expense 8,400; credit Cash 8,400
• Debit Dividends Payable 8,400; credit Cash 8,400
• Debit Dividends 8,400; credit Dividends Payable 8,400
• Debit Cash 8,400; credit Retained Earnings 8,400

After its first month, an illustrative software firm's books show Accumulated Depreciation of $350 on its computer equipment. How is that account classified?

Select one.

• As a debt the firm owes to the company that sold it the computers
• As a contra asset with a credit balance that reduces the equipment's cost
• As an expense shown on the income statement each month
• As the drop in the computers' resale value since they were bought

An illustrative tutoring business organized as a corporation records these events in its first month. Which of them leave its total stockholders' equity where it was? Select every one that applies.

Select every option that applies.

• Day 2: buys $420 of workbooks on account
• Day 11: collects $950 cash for sessions taught that day
• Day 5: pays $1,800 in advance for six months of scheduling software
• Day 26: pays $1,150 wages to a part-time tutor
• Day 16: pays $300 of the $420 it owes for the workbooks

A small software firm (illustrative) has 52,000 shares of common stock issued, every one of them outstanding. It then reacquires 2,500 of its own shares and holds them in treasury. How many shares remain outstanding?

Select one.

• 52,000
• 49,500
• 54,500
• 2,500

True or false: a landscaping corporation (illustrative) records the liability for a cash dividend on the date of record, the day that determines which shareholders will be paid.

True or false.

• True
• False

A medical supply distributor (illustrative) issues $300,000 of 8 percent bonds for $309,600. The bonds pay $12,000 of cash interest each semiannual period, and the premium is amortized by the straight-line method over 16 periods. How much interest expense does the distributor record each period?

Select one.

• $11,400
• $12,600
• $12,000
• $12,384

A catering client signs an $8,000, 9 percent, 4-month note payable to a landscaping company (illustrative). Applying simple interest, Face × Rate × Time, how much interest will the company have earned when the note matures?

Select one.

• $240
• $720
• $2,880
• $60

True or false: once a trial balance shows equal debit and credit totals, the bookkeeper can be sure that no transaction was left out or posted to the wrong account.

True or false.

• True
• False

True or false: IFRS permits LIFO for a company that applies it consistently from year to year.

True or false.

• True
• False

At the end of its first week, an illustrative dog-grooming service lists these account balances. Which one is a liability?

Select one.

• Supplies
• Accounts Receivable
• Accounts Payable
• Grooming Equipment

An illustrative dog-grooming service is closing its books for the year. Which of these accounts does it reset to zero with closing entries? Select all that apply.

Select every option that applies.

• Common Stock
• Grooming Revenue
• Wages Payable
• Dividends
• Prepaid Insurance
• Rent Expense

A small landscaping company (illustrative) makes no estimate of uncollectible accounts at year end. It books an expense only in the month it decides that a particular client will never pay. Which approach to bad debts is it following?

Select one.

• The allowance method
• An aging schedule estimate
• The direct write-off method
• The net realizable value approach

A new bookkeeper is sorting accounts by normal balance. Which group lists only accounts that a debit increases?

Select one.

• Equipment, Rent Expense, and Dividends
• Accounts Payable, Common Stock, and Service Revenue
• Cash, Accounts Payable, and Service Revenue
• Service Revenue, Wages Expense, and Retained Earnings

A landscaping company (illustrative) ages its customer balances at the end of Year 2: $46,000 not yet due, estimated 2 percent uncollectible; $9,000 that are 1 to 30 days late, estimated 5 percent; $4,000 that are 31 to 60 days late, estimated 15 percent; and $1,000 more than 60 days late, estimated 40 percent. What ending balance does its Allowance for Doubtful Accounts need?

Select one.

• $2,370
• $1,970
• $1,200
• $400

A food truck business (illustrative) owes $72,000 on an equipment note that it repays in equal principal payments of $12,000 a year, with six payments left. How should the note be reported on its classified balance sheet?

Select one.

• $72,000 in current liabilities
• $72,000 in long-term liabilities
• $12,000 in current liabilities and $60,000 in long-term liabilities
• $12,000 as an expense this year and $60,000 in long-term liabilities

An illustrative campus bookstore uses a perpetual inventory system for the hoodies it sells. When does that system update Inventory and Cost of Goods Sold?

Select one.

• Only after a physical count of the shelves at period end
• Each time the store buys or sells a hoodie
• Only on the days the store pays a supplier in cash
• Once a year, when the store makes its closing entries

True or false: an illustrative hardware store buys 24 ladders FOB destination, so the hardware store, not the seller, pays the $96 freight to deliver them.

True or false.

• True
• False