Question : 90.The balance sheet of Ernie’s Restaurant showed total assets of : 1254496

Accounting

90.The balance sheet of Ernie’s Restaurant showed total assets of $300,000, liabilities of $80,000 and equity of $270,000. An appraiser estimated the market value of the restaurant assets at $340,000. If Bert Company pays $385,000 cash for the restaurant the amount of goodwill purchased would be:

A. $45,000.

B. $85,000.

C. $115,000.

D. $125,000.

91.On January 1, 2013, Sanchez Company paid $160,000 to obtain a patent. Sanchez expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, 2015 income statement and the book value of the patent on the December 31, 2015 balance sheet would be:

A. $20,000/$60,000.

B. $32,000/$64,000.

C. $20,000/$100,000.

D. $32,000/$96,000.

92.The Harlow Company purchased the Hampton Company for $600,000 cash. The fair market value of Hampton’s assets was $520,000, and the company had liabilities of $30,000. Which of the following choices would reflect the purchase on Harlow’s financial statements?

93.Buffett Company experienced an accounting event that affected its financial statements as indicated below: Which of the following accounting events could have caused these effects on Buffett’s statements?

A. Recognized depletion expense under the units-of-production method.

B. Recognized depreciation expense under the double declining balance method.

C. Amortized patent cost under the straight-line method.

D. Any of these.

94.The Grant Company purchased the Lee Company for $600,000 cash. The fair market value of Lee’s assets was $520,000, and the company had $40,000 in liabilities. Which of the following choices would reflect the purchase on Grant’s financial statements?

A. Option A

B. Option B

C. Option C

D. Option D

95.Which of the following measurements would not be affected by the choice of depreciation methods?

A. Debt to assets ratio

B. Total assets

C. Total cash flow from investing activities

D. Return on equity ratio

96.Which of the following should be the main determinant for selection of the allocation method for long-term operational assets?

A. The method that best matches the pattern of asset use.

B. The method that is most convenient to compute.

C. The method that provides the greatest return to the stockholders.

D. The method that provides the best tax advantage.

97.Which of the following industries would most likely have the highest value for the ratio of sales to property, plant, and equipment?

A. Airline

B. Consumer product manufacturing company

C. Electric utility

D. Stock brokerage

98.The Parks Corporation, a U.S. business, is a direct competitor of the Rhine Company, a German firm. The two firms not only compete for customers, but also for investment capital. In 2013, each company spent about $35,000 U.S. dollars or the equivalent on research and development. U.S. GAAP requires the entire amount to be expensed, while Germany requires its businesses to record R&D expenditures as an asset and then to expense it over its useful life. Assuming the treatment of R&D is the only difference between the two firms, which of the following is correct?

A. Parks will have higher total assets than Rhine in 2013.

B. Rhine will have a lower net income for 2013.

C. Parks will have a higher debt-to-assets ratio than Rhine in 2013.

D. This difference in accounting principles does not affect the total amount of assets reported by the two companies.

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July 1, 2023

Multiple Choice Questions

66.A merchandiser:

A.Earns net income by buying and selling merchandise.

B.Receives fees only in exchange for services.

C.Earns profit from commissions only.

D.Earns profit from fares only.

E.Buys products from consumers.

67.Cost of goods sold:

A.Is another term for merchandise sales.

B.Is the term used for the expense of buying and preparing merchandise for sale.

C.Is another term for revenue.

D.Is also called gross margin.

E.Is a term only used by service firms.

68.A company has sales of $695,000 and cost of goods sold of $278,000. Its gross profit equals:

A.$(417,000).

B.$695,000.

C.$278,000.

D.$417,000.

E.$973,000.

69.A company has sales of $375,000 and its gross profit is $157,500. Its cost of goods sold equals:

A.$(217,000).

B.$375,000.

C.$157,500.

D.$217,500.

E.$532,500.

70.The following statements regarding gross profit are true except:

A.Gross profit is also called gross margin.

B.Gross profit less other operating expenses equals income from operations.

C.Gross profit is not calculated on the multiple-step income statement.

D.Gross profit must cover all operating expenses to yield a return for the owner of the business.

E.Gross profit equals net sales less cost of goods sold.

71.The following statements regarding merchandise inventory are true except:

A.Merchandise inventory is reported on the balance sheet as a current asset.

B.Merchandise inventory refers to products a company owns and intends to sell.

C.Merchandise inventory may include the costs of freight in and making them ready for sale.

D.Merchandise inventory appears on the balance sheet of a service company.

E.Purchasing merchandise inventory is part of the operating cycle for a business.

72.The following statements are true regarding the operating cycle of a merchandising company except:

A.The operating cycle begins with the purchase of merchandise.

B.The operating cycle is shortened by credit sales.

C.The operating cycle ends with the collection of cash from the sale of merchandise.

D.The operating cycle can vary in length among different merchandising companies.

E.The operating cycle sometimes involves accounts receivable.

73.Merchandise inventory:

A.Is a long-term asset.

B.Is a current asset.

C.Includes supplies the company will use in future periods.

D.Is classified with investments on the balance sheet.

E.Must be sold within one month.

74.The operating cycle for a merchandiser that sells only for cash moves from:

A.Purchases of merchandise to inventory to cash sales.

B.Purchases of merchandise to inventory to accounts receivable to cash sales.

C.Inventory to purchases of merchandise to cash sales.

D.Accounts receivable to purchases of merchandise to inventory to cash sales.

E.Accounts receivable to inventory to cash sales.

75.The current period's ending inventory is:

A.The next period's beginning inventory.

B.The current period's cost of goods sold.

C.The prior period's beginning inventory.

D.The current period's net purchases.

E.The current period's beginning inventory.