Deck 5: Merchandising Operations and the Multiple-Step Income Statement

Question 1

Northern Retailers regularly makes payments to a state government for the sales taxes resulting from its sales to customers. These sales taxes:

A) should appear on Northern's income statement as an expense.
B) are based upon a company's gross profit in most states.
C) are long-term liabilities when they have been paid.
D) are collected by Northern's as an agent for the state's taxing authority.

Answer 1

D

Question 2

Salvage value is deducted for the initial computation of depreciation expense in all of the following methods with the exception of:

A) straight-line.
B) units-of-activity.
C) declining-balance.
D) All of the above include a deduction of salvage value.

Answer 2

C

Question 3

Nyguen Company bought real estate, on which there was an old office building, for $700,000. They paid $90,000 in cash as a down payment and signed a 6% mortgage for the remainder. They immediately had the old building razed at a net cost of $30,000, the salvaged materials were sold for $4,200. Attorneys were paid $7,000 in connection with the land purchase and an additional $3,000 in connection with permits and zoning variances necessary for Nyguen's new office building. $25,000 was paid for excavation for the basement of the new building. $2,400,000 was paid for construction of the new building, and $95,000 was paid for a parking lot and necessary walkways and driveways. Land should be recorded at a cost of:

A) $732,800.
B) $737,000.
C) $735.800.
D) $760,800.

Answer 3

A

Question 4

Failure to record a liability will probably:

A) result in a overstated net income.
B) result in overstated total liabilities and owner's equity.
C) have no effect on net income.
D) result in overstated total assets.

Question 5

Which of the following should not be included in the plant assets (property, plant, and equipment) classification?

A) Land on which warehouse sits
B) Building housing corporate headquarters
C) Parking lot used by visitors
D) Land held for investment.

Question 6

The cost of a patent should be amortized over:

A) forty years.
B) the shorter of its legal life or its useful life.
C) the longer of its legal life or its useful life.
D) its useful life.

Question 7

The Blueberry Company issued a five-year interest-bearing note payable for $75,000 on January 1, 2011. Each January the company is required to pay $15,000 on the note. How will this note be reported on the December 31, 2012, balance sheet?

A) Long-term Debt, $75,000.
B) Long-term Debt, $60,000.
C) Long-term Debt, $45,000; Long-term Debt due within one year, $15,000.
D) Long-term Debt of $60,000; Long-term Debt due within one year, $15,000.

Question 8

Nyguen Company bought real estate, on which there was an old office building, for $700,000. They paid $90,000 in cash as a down payment and signed a 6% mortgage for the remainder. They immediately had the old building razed at a net cost of $30,000, the salvaged materials were sold for $4,200. Attorneys were paid $7,000 in connection with the land purchase and an additional $3,000 in connection with permits and zoning variances necessary for Nyguen's new office building. $25,000 was paid for excavation for the basement of the new building. $2,400,000 was paid for construction of the new building, and $95,000 was paid for a parking lot and necessary walkways and driveways. The new office building should be recorded at:

A) $2,400,000.
B) $2,428,000.
C) $2,425,000.
D) $2,400,000.

Question 9

Which of the following is not an intangible asset?

A) Research and development costs.
B) Copyrights.
C) Organization costs.
D) Goodwill.

Question 10

Tobo Corp. issued $500,000 of 5%, 5-year bonds at 102 on January 1, 2012. The straight-line method of amortization is used and the bonds pay interest annually on January 1. The amount of bond interest expense that Tobo should report on its 2012 income statement is:

A) $27,000.
B) $23,000.
C) $25,000.
D) $24,000.

Question 11

Trout Corporation issues its bonds at a discount. Amortization of the discount will:

A) decrease bond interest expense.
B) increase bond interest expense.
C) decrease the carrying value of the bonds on the balance sheet.
D) be reported as a loss on the income statement.

Question 12

Guido Company does not ring up sales taxes separately on the cash register. Total receipts for October amounted to $25,200. If the sales tax rate is 5%, what amount must be remitted to the state for October's sales taxes?

A) $1,200
B) $1,260
C) $60
D) It cannot be determined.

Question 13

Bonds that are subject to retirement at a stated dollar amount prior to maturity at the option of the issuer are called:

A) options.
B) early retirement bonds.
C) callable bonds.
D) debentures.

Question 14

Warren Paints purchased machinery for $75,000 eight years ago. It was expected to have a useful life of ten years, no salvage value, and was depreciated using the straight-line method. At the end of its eighth year of use it was retired from service and given to a junk dealer. The entry to record the retirement includes a:

A) debit to Loss on Disposal for $15,000.
B) debit to Machinery for $75,000.
C) debit to Depreciation Expense for $15,000.
D) credit to Accumulated Depreciation-Machinery for $60,000.

Question 15

On the balance sheet the current portion of long-term debt should:

A) be paid immediately.
B) be reclassified as a current liability.
C) be classified as a long-term liability.
D) not be separated from the long-term portion of debt.

Question 16

Speedy Corporation borrowed $200,000 on March 1, 2012, signing a one-year, 7% note payable to First State Bank. The adjusting entry required on December 31, 2012, includes a:

A) debit to Interest Expense of $14,000.
B) debit to Cash of $240,000.
C) credit to Interest Payable of $11,667.
D) credit to Interest Revenue of $11,667.

Question 17

On July 1, 2012, Low Enterprises sold equipment with an original cost of $255,000 for $120,000. The equipment was purchased January 1, 2011, and was depreciated using the straight-line method assuming a five year useful life and $15,000 salvage value. The necessary entries for 2012 include a:

A) debit to Accumulated Depreciation-Equipment for $48,000.
B) credit to Gain on Sale of Equipment for $63,000.
C) credit to Cash for $120,000.
D) debit to Depreciation Expense for $24,000.