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ACCT 2301 Questions from Exam 2

Which item is a current asset?
a. Cash – regardless of whether it has a positive or negative balance
b. Cash equivalents
c. Cash that will be used to close a plant in eighteen months
d. Restricted cash that will not be used within the upcoming year
Restricted cash should be reported
a. always as a noncurrent asset
b. separately on the income statement
c. separately on the balance sheet
d. always as a current asset
Which of the following is not a basic principle of cash management?
a. Increase the speed of receivables collections
b. Keep inventory levels high
c. Monitor payment of liabilities
d. Invest idle cash
All of the following are true regarding the management and monitoring of cash except
a. companies may have plenty of sales, but insufficient cash to support operations
b. manufacturers may experience a significant lag between he purchase of raw materials and the receipt of cash from customers
c. companies should have sufficient cash to meet payments but minimize the amount of non-revenue generating cash on hand
d. the cash to cash operating cycle manufacturer is generally shorter than that of merchandising company
The direct write-off method of accounting for bad debts
a. uses an allowance account
b. uses a contra asset account
c. does not require estimates of bad debt losses
d. is the preferred method under generally accepted accounting principles
Notes or accounts receivables that result from sales transactions are often called
a. sales receivable
b. non-trade receivables
c. trade receivables
d. merchandise receivables
Under the allowance method, when a specific account is written off
a. total assets will be unchanged
b. net income will decrease
c. total assets will decrease
d. total assets will increase
An aging of company’s accounts receivables indicates that $4,500 are estimated to be uncollectible. If Allowance for Doubtful Accounts has a $1,200 debit balance, the adjustment to record bad debts for the period will require a
a. debit to Bad Debt Expense fro $4,500
b. debit to Allowance for Doubtful Accounts for $5,700
c. debit to Bad Debt Expense for $5,700
d. credit to Allowance for Doubtful Accounts for $4,500
When applying the lower cost or market rule to inventory valuation, market generally means
a. current replacement cost
b. original cost
c. resale value
d. original cost, less physical deterioration
If goos in transit are shipped FOB destination
a. the seller has legal title to the goods until they are delivered
b. the buyer has legal title to the goods until they are delivered
c. the transportation company has legal title to the goods while the goods are in transit
d. no one has legal title to the goods until they are delivered
In period of increasing prices, which inventory flow assumption will result in the lowest amount of income tax expense?
c. Average cost method
d. Income tax expense for the period will be the same under all assumptions
The cost flow method that often parallels the actual physical flow of merchandise is the:
a. FIFO method
b. LIFO method
c. average cost method
d. gross profit method
The four subdivisions for plant assets are
a. lang, land improvements, buildings, and equipment
b. intangibles, land, buildings, and equipment
c. furnishings and fixtures, land, buildings, and equipment
d. property, plant, equipment, and land
National Molding is building a new plant that will take three years to construct. The construction will be financed in part by funds borrowed during the construction period. There are significant architect fees, excavation fees, and building permit fees. Which of the following statements is true?
a. Excavation fees are capitalized but building permit fees are not
b. Architect fess are capitalized but building permit fees are not
c. Interest is capitalized during the construction as part of the cost of the building
d. The capitalized cost is equal to the contract price to build the plant less any interest on borrowed funds
Which of the following is not true of ordinary repairs?
a. They primarily benefit the current accounting period
b. They can be referred to as revenue expenditures
c. They maintain the expected productive life of the asset
d. They increase the productive capacity of the asset
Which of the following methods will result in the highest depreciation in the first year?
a. Sum-of-year’s-digits
b. Time valuation
c. Straight-line
d. Declining-balance

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