AC 116 MIDTERM QUESTIONS AND ANSWERS

CH 23-State and Local Taxes

July 12, 2018

Two Discussion questions for Emergency Management

July 12, 2018

Chapter
8

1. A necessary element of internal control
is

database

systems
design

systems
analysis

information
and communication

2. An example of a preventive control is

the
use of a bank account

separation
of the Purchasing Department and Accounting Department personnel

bonding
employees who handle cash

accepting
payment in currency only

3. Under the voucher system, every
transaction is recorded at the time of

requisitioning

ordering

incurring

paying

4. A debit or credit memorandum describing
entries in the depositor’s bank account may be enclosed with the bank
statement. An example of a credit
memorandum is

deposited
checks returned for insufficient funds

a
promissory note left for collection

a
service charge

notification
that a customer’s check for $375 was recorded by the depositor as $735 on the
deposit ticket

5. Journal entries based on the bank
reconciliation are required in the depositor’s accounts for

outstanding
checks

deposits
in transit

bank
errors

book
errors

6. Accompanying the bank statement was a
credit memorandum for a short-term note collected by the bank for the
customer. What entry is required in the
depositor’s accounts?

debit
Notes Receivable; credit Cash

debit
Cash; credit Miscellaneous Income

debit
Cash; credit Notes Receivable

debit
Accounts Receivable; credit Cash

7. Accompanying the bank statement was a
debit memorandum for an NSF check received from a customer. What entry is required in the depositor’s
accounts?

debit
Other Income; credit Cash

debit
Cash; credit Other Income

debit
Cash; credit Accounts Receivable

debit
Accounts Receivable; credit Cash

8.
Which of the following would be subtracted from the balance per bank on a bank
reconciliation?

Outstanding checks

Deposits in transit

Notes collected by the bank

Service charges

9.
Marcus Company developed the following reconciling information in preparing its
September bank reconciliation:

Cash balance per bank, 9/30

$11,000

Note receivable collected by bank

6,000

Outstanding checks

9,000

Deposits-in-transit

4,500

Bank service charge

NSF

1,200

Using
the above information, determine the cash balance per books (before
adjustments) for the Marcus Company.

$9,775

$15,725

$15,500

$1,775

10. A $100 petty cash fund contains $92 in
petty cash receipts, and $6.50 in currency and coins. The journal entry to record the replenishment
of the fund would include a

credit
to Petty Cash for $93.50

credit
to Cash for $92

debit
to Cash Short and Over for $1.50

credit
to Cash Short and Over for $1.50

11. In the normal operation of business
you receive a check from a customer and deposit it into your checking account.
With your bank statement you are advised that this check for $450 is âNSFâ. The
bank also informs you that due to the amount of activity on your business
account the monthly service charge is $40.
During
a bank reconciliation:

subtract
both values from balance according to bank.

add
both values from balance according to books.

add
both values from balance according to bank.

subtract
both values from balance according to books.

Chapter 9

12. The receivable that is usually
evidenced by a formal instrument of credit is a(n)

trade receivable.

note receivable.

accounts receivable.

income
tax receivable.

13. The type of account and normal balance
of Allowance for Doubtful Accounts is

contra
asset, credit

asset,
debit

liability,
credit

expense,
debit

expense,
credit

14. If the direct write-off method of
accounting for uncollectible receivables is used, what general ledger account
is credited to write off a customer’s account as uncollectible?

Uncollectible
Accounts Expense

Accounts
Receivable

Allowance
for Doubtful Accounts

Interest
Expense

15. An estimate based on an analysis of
receivables shows that $780 of accounts receivables are uncollectible. The Allowance for Doubtful Accounts has a
debit balance of $110. After preparing
the adjusting entry at the end of the year, the balance in the Allowance for
Doubtful Accounts is

$110

$780

$670

$890

16. If the allowance method of accounting for
uncollectible receivables is used, what general ledger account is credited to
write off a customer’s account as uncollectible?

Uncollectible
Accounts Expense

Accounts
Receivable

Allowance
for Doubtful Accounts

Interest
Expense

17. The balance in Allowance for Doubtful
Accounts must be carefully considered prior to the end of the year adjustment
when applying which method?

direct
write-off method

estimate
based on sales

estimate
based on an analysis of receivables

both
(b) and (c)

18.
An aging of a company’s accounts receivable indicates that $3,000 are estimated
to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 credit
balance, the adjustment to record bad debts for the period will require a

debit to Bad Debt Expense for $4,200.

debit to Bad Debts Expense for $3,000.

debit to Bad Debts Expense for $1,800.

credit to Allowance for Doubtful Accounts for $4,000.

19. A 60-day, 10% note for $8,000, dated April
15, is received from a customer on account.
The face value of the note is

$8,600

$7,200

$8,800

$8,000

20. The journal entry to record a note
received from a customer to apply on account is

debit
Notes Receivable; credit Accounts Receivable

debit
Accounts Receivable; credit Notes Receivable

debit
Cash; credit Notes Receivable

debit
Notes Receivable; credit Notes Payable

21. Pane Company receives a $3,000,
3-month, 6% promissory note from Dag Company in settlement of an open accounts
receivable. What entry will Pane Company
make upon receiving the note?

Notes Receivable
3,000
Accounts ReceivableâDag
Company 3,000

Notes Receivable
3,045
Accounts ReceivableâDag
Company 3,045

Notes Receivable 3,045
Accounts ReceivableâDag
Company 3,000
Interest Revenue
45

Notes Receivable 3,000
Interest Receivable
45
Accounts ReceivableâDag
Company 3,000
Interest Revenue 45

22. A 60-day, 12% note for $10,000, dated
May 1, is received from a customer on account.
If the note is discounted on May 21 at 15%, the proceeds are

$170

$9,830

$10,000

$10,030

Chapter 10

23. Land acquired so it can be resold in
the future is listed in the balance sheet as a(n)

fixed
asset

current
asset

investment

intangible
asset

24. A used machine with a purchase price of
$77,000, requiring an overhaul costing $8,000, installation costs of $5,000,
and special acquisition fees of $2,000, would have a cost basis of

$92,000

$91,000

$87,000

$86,000

25. In
a lease contract, the party who legally owns the asset is the

lessee

lessor

operator

banker

26. Equipment with a cost of $160,000 has
an estimated residual value of $10,000 and an estimated life of 5 years or 12,000
hours. It is to be depreciated by the straight-line method. What is the amount
of depreciation for the first full year, during which the equipment was used
3,300 hours?

$30,000

$32,500

$34,000

$40,000

27. Equipment with a cost of $80,000, an
estimated residual value of $5,000, and an estimated life of 15 years was
depreciated by the straight-line method for 5 years. Due to obsolescence, it
was determined that the useful life should be shortened by 5 years and the
residual value changed to zero. The depreciation expense for the current and
future years is

$5,500

$11,000

$10,000

$5,000

28. The proper journal entry to purchase a
computer on account to be utilized within the business would be:

Jan
2 Office Supplies 1,250.00
Accounts Payable
1,250.00

Jan
2 Office Equipment 1,250.00
Accounts Payable
1,250.00

Jan
2 Office Supplies 1,250.00
Accounts Receivable 1,250.00

Jan
2 Office Equipment 1,250.00
Accounts Receivable 1,250.00

29. The calculation for annual
depreciation using the units-of-production method is

(initial
cost/estimated output) * the actual yearly output

(depreciable
cost / yearly output) * estimated output

depreciable
cost / yearly output

(depreciable
cost / estimated output) * the actual yearly output

30. A fixed asset with a cost of $42,000
and accumulated depreciation of $38,500 is traded for a similar asset priced at
$60,000. Assuming a trade-in allowance of $5,000, the cost basis of the new
asset is

$58,000

$58,500

$60,000

$61,500

31. The Brock Company acquired new
machinery with a price of $15,200 by trading in similar old machinery and
paying $12,700. The old machinery
originally cost $9,000 and had accumulated depreciation of $5,000. In recording this transaction, Brock Company
should record

the
new machinery at $16,700

the
new machinery at $12,700

a
gain of $1,500

a
loss of $1,500

32. On December 31, Reach It Batting Cages
Company has decided to discard one of its batting cages. The initial cost of the equipment was
$225,000 with an accumulated depreciation of $195,000. Depreciation has been taken up to the end of
the year. The following will be included
in the entry to record the disposal.

Accumulated
Depreciation Dr. $225,000

Loss
on Disposal of Asset $195,000

Equipment
Cr. $225,000

Gain
on Disposal of Asset $30,000

33. Which intangible assets are amortized
over their useful life?

trademarks

goodwill

patents

all
of the above

Chapter
11

34. On June 8, Acme Co. issued an $80,000,
6%, 120-day note payable on an overdue account payable to Still Co. Assume that the fiscal year of Acme Co. ends
June 30. Which of the following
relationships is true?

Acme
is the creditor and credits Accounts Receivable

Still
is the creditor and debits Accounts Receivable

Still
is the borrower and credits Accounts Payable

Acme
is the borrower and debits Accounts Payable

35. The maturity value of a $40,000, 90-day,
6% note payable is

$40,600

$42,400

$600

$2,400

36. The journal entry a company uses to
record the payment of a discounted note is

debit
Notes Payable and Interest Expense; credit Cash

debit
Notes Payable; credit Cash

debit
Cash; credit Notes Payable

debit
Accounts Payable; credit Cash

37. Gray County Bank agrees to lend the
Starkwood Building Company $100,000 on January 1. Starkwood Building Company signs a $100,000, 9%,
9-month note. What entry will Starkwood Building Company make to pay off the
note and interest at maturity assuming that interest has been accrued to
September 30?

Notes Payable 106,750
Cash 106,750

Notes Payable 100,000
Interest
Payable
6,750
Cash
106,750

Interest Expense 6,750
Notes
Payable
100,000
Cash
106,750

Interest
Payable 9,000
Notes
Payable
100,000
Cash
109,000

38. The total payroll of a business is usually
significant for all the reasons below except

employees
are sensitive to payroll errors and irregularities

payroll
is subject to various federal and state regulations

businesses
find it difficult to develop and maintain good internal controls on the
payroll system

payroll
and related payroll taxes have a significant effect on the net income of most
businesses

39. Prior to the last weekly payroll period
of the calendar year, the cumulative earnings of employees A and B are $99,350
and $91,000 respectively. Their earnings
for the last completed payroll period of the year are $850 each. The amount of earnings subject to social
security tax at 6% is $100,000. All
earnings are subject to Medicare tax of 1.5%.
Assuming that the payroll will be paid on December 29, what will be the
employer’s total FICA tax for this payroll period on the two salary amounts of
$850 each?

$127.50

$115.50

$112.50

40. Manning Company has the following
information for the pay period of December 15 – 31, 20xx.

Gross
payroll

$15,000

Federal
income tax withheld

$3,000

Social
security rate

Federal
unemployment tax rate

.8%

Medicare
rate

1.5%

State
unemployment tax rate

5.4%

Salaries
Payable would be recorded for

$15,000

$11,100

$10,875

$9,945

41. The following totals for the month of
June were taken from the payroll register of ABC Company:

Salaries
expense

$13,000

Social
security and Medicare Taxes withheld

975

Income
Taxes withheld

2,600

Retirement
Savings

500

Salaries
subject to federal and state unemployment
taxes of 6.2 percent

4,000

The entry
to record the accrual of employerâs payroll taxes would include a

debit
to Payroll Taxes Expense for $1,223

credit
to Social Security and Medicare Tax Payable for $1,950

debit
to Payroll Taxes Expense for $248

Debit
to Payroll Tax Expense for $975

42. An aid in internal control over
payrolls that indicates employee attendance is

“clock
card”

voucher
system

payroll
register

employee’s
earnings record

43. The journal entry a company uses to
record pension rights that have not been funded for its salaried employees, at
the end of the year is

debit
Salary Expense; credit Cash

debit
Pension Expense; credit Unfunded Pension Liability

debit
Pension Expense; credit Unfunded Pension Liability and Cash

debit
Pension Expense; credit Cash

44. During June, CircuitSound sold 800
portable CD players for $50 each. Each
CD player cost CircuitSound $25 to purchase and carried a one-year
warranty. If 10 percent typically need
to be replaced over the warranty period, what amount should CircuitSound debit
Product Warranty Expense for in June?

$4,000

$400

$2,000

$1,000

Chapter
13

45. Under the corporate form of business
organization

ownership
rights are easily transferred.

a stockholder is personally liable for the debts of the
corporation.

stockholdersâ acts can bind the corporation
even though the stockholders have not been appointed as agents of the
corporation.

stockholders wishing to sell their
corporation shares must get the approval of other stockholders.

46. The two ways that a corporation can be
classified by ownership are

stock and non-stock.

inside and outside.

majority and minority.

for
profit or not-for-profit.

47. The entry to record the issuance of 150
shares of $5 par common stock at par to an attorney in payment of legal fees
for organizing the corporation includes a credit to

Organizational
Expenses

Goodwill

Common
Stock

Cash

48. Alliance Corp. issues 1,000
shares of $10 par value common stock at $14 per share. When the transaction is recorded, credits are
made to:

Common
Stock $14,000.

Common
Stock $10,000 and Paid-in Capital in Excess of Par Value $4,000.

Common
Stock $10,000 and Paid-in Capital in Excess of Stated Value $4,000.

Common
Stock $10,000 and Retained Earnings $4,000.

49. The journal entry to issue 1,000,000 shares
of $5 par common stock for $6.25 per share on January 2nd would be:

Jan
2 Cash
6,250,000
Common Stock
5,000,000
Paid-In Capital in Excess
of Par – C/S 1,250,000

Jan
2 Cash
5,000,000
Common Stock
5,000,000

Jan
2 Cash 5,000,000
Paid-In Capital in Excess of Par
– C/S 1,250,000
Common Stock
6,250,000

Jan
2 Cash 1,000,000
Common Stock
1,000,000

50. Which of the following is not
a prerequisite to paying a cash dividend?

formal
action by the board of directors

market
value in excess of par value per share

sufficient
cash

sufficient
retained earnings

51. A corporation purchases 10,000 shares
of its own $10 par common stock for $25 per share, recording it at cost. What will
be the effect on total stockholders’ equity?

increase,
$100,000

increase,
$250,000

decrease,
$100,000

decrease,
$250,000

52. Retained earnings

is
the same as contributed capital

cannot
have a debit balance

changes
are summarized in the retained earnings statement

over
time will have a direct relationship with the amount of cash on hand if the
corporation is profitable

53. When a corporation completes a 3-for-1
stock split

the
ownership interest of current stockholders is decreased

the
market price per share of the stock is decreased

the
par value per share is decreased

b
and c

54. If the board of directors authorizes
a $100,000 restriction of retained earnings for a future plant expansion, the
effect of this action is to

decrease
total assets and total stockholdersâ equity.

reduce
the amount of retained earnings available for dividend declarations.

increase
stockholdersâ equity and to decrease total liabilities.

decrease
total retained earnings and increase total liabilities.

Chapter
14

55. Which of the following is an example of
a temporary difference between taxable income and reported income?

using
the installment method of determining revenue for taxable income and for
income statement reporting

using
the straight-line depreciation method for income statement reporting and
MACRS depreciation for taxable income

using
the straight-line depreciation method for some assets and MACRS depreciation
for other assets

including
tax-exempt municipal bond interest in net income and not including any tax-exempt
municipal bond interest in taxable income

56. Income tax allocation procedures are
justified by what concept?

Revenue
recognition

Matching

Conservatism

Cash
basis accounting

57.
ABC Company has incurred a period income tax expense of $500,000. The tax
accountants inform the financial accountants that 60% of this value will be
paid on March 15th, 2 1/2 months away, while the balance will be paid in 14 1/2
months. The journal entry to recognize these obligations is:

Dec
31 Income Tax Expense 300,000
Income Tax Payable 200,000
Cash
500,000

Dec
31 Income Tax Expense 500,000
Income Tax Payable –
Current 300,000
Income Tax Payable –
Non Current 200,000

Dec
31 Income Tax Expense 500,000
Cash
500,000

Dec
31 Income Tax Payable 500,000
Income Tax Expense 500,000

58. Which of the following items should be
classified as an extraordinary item on a corporate income statement?

Gain
on the retirement of a bond payable

Gain
from land condemned for public use

Loss
due to an discontinued operation

Selling
treasury stock for more than the company paid for it

59. For the year that just ended, a
company reports net income of $3,200,000. There are 750,000 shares authorized, 600,000
shares issued, and 500,000 shares of common stock outstanding. What is the
earnings per share?

$6.40

$3.20

$5.33

$3.33

60. The Lange Company has a simple capital
structure. The company has 20,000 shares
of common stock outstanding. Net income
for the year was $65,000. Lange declared
and paid a preferred stock dividends of $4,000 during the year. Earnings per share for the year is:

$3.25

$.125

$3.05

$3.45

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61. Long-term investments are held for all
of the listed reasons below except

their
income

long-term
gain potential

influence
over another business entity

meet
current cash needs

62.
Bean Corporation purchased 35% of the outstanding shares of common stock of
Williams Corporation as a long-term investment.
Subsequently, Williams Corporation reported net income and declared and
paid cash dividends. What journal entry
would Bean Corporation use to record its share of the earnings of Williams
Corporation?

debit
Investment in Williams Corporation Stock; credit Cash

debit
Cash; credit Dividend Revenue

debit
Investment in Williams Corporation; credit Income of Williams Corporation

debit
Cash; credit Investment in Williams Corporation

63. For 2008, net income is $240,000,
shares outstanding are 80,000, and the market price is $24. What is the price-earnings ratio on common
stock (round to one decimal point?)

8.0

7.7

10.0

3.0

64. For accounting purposes, the method
used to account for investments in common stock is determined by

the
amount paid for the stock by the investor.

whether
the acquisition of the stock by the investor was “friendly” or
“hostile.”

the
extent of an investor’s influence over the operating and financial affairs of
the investee.

whether
the stock has paid dividends in past years.

Chapter
15

65. A corporation would not be
successfully trading on equity if it gathered funds by

issuing
common stock

issuing
preferred stock

issuing
notes

issuing
bonds

66. When the market rate of interest on bonds
is higher than the contract rate, the bonds will sell at

a
premium

their
face value

their
maturity value

a
discount

67. If $3,000,000 of 10% bonds are issued
at 97, the amount of cash received from the sale is

$3,300,000

$3,000,000

$3,090,000

$2,910,000

68. When the market rate of interest was
11%, Waverly Corporation issued $1,000,000, 12%, 8-year bonds that pay interest
semiannually. The selling price of this
bond issue was

$1,052,310

$1,154387

$1,000,000

$
720,495

69.
If the market rate of interest is greater than the contractual rate of
interest, bonds will sell

at a premium.

at face value.

at
a discount.

only
after the stated rate of interest is increased.

70. Bonds with a face amount
$1,000,000, are sold at 97. The entry to record the issuance is

Cash
1,000,000
Premium
on Bonds Payable 30,000
Bonds Payable
970,000

Cash
970,000
Premium
on Bonds Payable
30,000
Bonds Payable 1,000,000

Cash
970,000
Discount
on Bonds Payable
30,000
Bonds Payable
1,000,000

Cash 970,000
Bonds Payable
970,000

71. Bonds Payable has a balance of
$1,000,000 and Discount on Bonds Payable has a balance of $15,500. If the issuing corporation redeems the bonds
at 99, what is the amount of gain or loss on redemption?

$5,500
loss

$15,500
loss

$15,500
gain

$5,500
gain

72. The balance in Discount on Bonds Payable
that is applicable to bonds due in 2015 would be reported on the balance sheet
in the section entitled

current
liabilities

long-term
liabilities

current
assets

intangible
assets

73.
The Raymore Company issued 10-year bonds on January 1, 2007. The 15% bonds have
a face value of $100,000 and pay interest every January 1 and July 1. The bonds were sold for $117,205 based on the
market interest rate of 12%. Raymore
uses the effective-interest method to amortize bond discounts and
premiums. On July 1, 2007, Raymore
should record interest expense (round to the nearest dollar) of

$7,032

$7,500

$8,790

$14,065

Chapter
16

74. Cash paid to purchase long-term investments
would be reported in the statement of cash flows in

the
cash flows from operating activities section

the
cash flows from financing activities section

the
cash flows from investing activities section

a
separate schedule

75. Cash paid for preferred stock
dividends should be shown on the statement of cash flows under

investing
activities

financing
activities

noncash
investing and financing activities

operating
activities

76. Investing activities
include

collecting
cash on loans made.

obtaining
cash from creditors.

obtaining
capital from owners.

repaying
money previously borrowed.

77. Accounts receivable arising from trade
transactions amounted to $45,000 and $52,000 at the beginning and end of the
year, respectively. Net income reported
on the income statement for the year was $105,000. Exclusive of the effect of other adjustments,
the cash flows from operating activities to be reported on the statement of
cash flows prepared by the indirect method is

$105,000

$112,000

$98,000

$140,000

78. Equipment with an original cost of
$50,000 and accumulated depreciation of $20,000 was sold at a loss of $7,000. As a result of this transaction, cash would

increase
by $23,000

decrease
by $7,000

increase
by $43,000

decrease
by $30,000

79. Which of the following should be deducted
from net income in calculating net cash flow from operating activities using
the indirect method?

a
decrease in inventory

a
decrease in accounts payable

preferred
dividends declared and paid

a
decrease in accounts receivable

80. Mega Sales sells some used store
fixtures. The acquisition cost of the fixtures is $12,500, the accumulated
depreciation on these fixtures is $9,750 at the time of sale. The fixtures are
sold for $3,000. The value of this transaction in the Investing section of the
statement of cash flows is:

$12,500

$3,000

$2,750

$250

81. Free cash flow is cash from
operations, less cash for

dividends
and cash for fixed assets needed to maintain productivity

dividends
and cash to redeem bonds payable

fixed
assets needed to maintain productivity

dividends,
cash for fixed assets needed to maintain productivity, and cash to redeem
bonds payable