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web.groovymark@gmail.com
- December 12, 2024
Question 41
A company redeems bonds at a discount. How is this transaction recorded?
A. Debit bonds payable, credit cash and gain on bond redemption
B. Debit bonds payable, debit gain on bond redemption, credit cash
C. Debit bonds payable, credit cash and loss on bond redemption
D. Debit cash, credit bonds payable and loss on bond redemption
Answer: A. Debit bonds payable, credit cash and gain on bond redemption
Explanation: When bonds are redeemed at a discount, the company debits bonds payable for the face value and credits both cash and gain on bond redemption for the discount.
Question 42
What is the accounting treatment for an extraordinary gain?
A. Expensed immediately
B. Recorded as operating income
C. Recorded as a non-operating item
D. Recorded as part of retained earnings
Answer: C. Recorded as a non-operating item
Explanation: Extraordinary gains are recorded as non-operating items on the income statement, reflecting their unusual and infrequent nature.
Question 43
A company has net income of $1,000,000 and pays out $200,000 in dividends. What is its payout ratio?
A. 10%
B. 20%
C. 50%
D. 5%
Answer: B. 20%
Explanation: The payout ratio is calculated by dividing dividends by net income, giving a payout ratio of 20% ($200,000 ÷ $1,000,000).
Question 44
Which method should be used to handle indirect costs of self-constructed assets?
A. Assigning no variable overhead to a constructed asset
B. Allocating overhead on the basis of gained production
C. Assigning a pro rata portion of all overhead to the asset
D. Allocating the total overhead to the asset
Answer: C. Assigning a pro rata portion of all overhead to the asset
Explanation: Self-constructed assets are assigned a portion of indirect costs, including overhead, based on a pro rata allocation to the asset.
Question 45
How is a liquidating dividend recorded?
A. Debit retained earnings, credit cash
B. Debit cash, credit common stock
C. Debit paid-in capital, credit dividends payable
D. Debit paid-in capital, credit cash
Answer: C. Debit paid-in capital, credit dividends payable
Explanation: Liquidating dividends are recorded as a reduction in paid-in capital, rather than retained earnings, as they represent a return of capital to shareholders.
Question 46
Which of the following items is considered an intangible asset?
A. Land
B. Patent
C. Inventory
D. Machinery
Answer: B. Patent
Explanation: Intangible assets, such as patents, lack physical substance but provide future economic benefits to the company.
Question 47
Which depreciation method is most appropriate for an asset whose usage varies significantly each year?
A. Straight-line method
B. Activity method
C. Declining balance method
D. Sum-of-the-years’-digits method
Answer: B. Activity method
Explanation: The activity method ties depreciation to the asset's actual usage, making it ideal for assets with variable usage patterns over time.
Question 48
A company has issued $2,000,000 of bonds at a premium. What is the effect of the premium on the bond’s carrying amount?
A. The premium increases the carrying amount of the bonds
B. The premium decreases the carrying amount of the bonds
C. The premium has no effect on the carrying amount
D. The premium decreases the interest expense
Answer: A. The premium increases the carrying amount of the bonds
Explanation: When bonds are issued at a premium, the premium is added to the face value, increasing the carrying amount of the bonds.
Question 49
What is the accounting treatment for sales tax collected by a company on behalf of the government?
A. Recognized as revenue
B. Recorded as a liability until remitted
C. Recorded as an expense
D. Deducted from accounts receivable
Answer: B. Recorded as a liability until remitted
Explanation: Sales tax collected is not considered revenue; it is recorded as a liability until the company remits the funds to the government.
Question 50
How should a company treat an intangible asset with an indefinite life?
A. Amortize over 40 years
B. Amortize over 10 years
C. Do not amortize, but test for impairment annually
D. Amortize based on estimated usage
Answer: C. Do not amortize, but test for impairment annually
Explanation: Intangible assets with indefinite lives are not amortized, but they must be tested annually for impairment to ensure their carrying value is recoverable.
