AC 210 Final CH 9-12

A bond with a face value of $1,000 has a current price quote of 102.880. What is the bond's current price in dollars? Multiple choice question. $102,880.00 $1,020.09 $10,028.00 $1,028.80

$1,028.80

What is the formula for calculating double-declining-balance depreciation?

(Cost - Accumulated Depreciation) x (2/useful life)

The formula for calculating double-declining-balance depreciation equals (Cost - _______ ________ ) x 2/useful life) Listen to the complete question

Accumulated Depreciation

On which financial statement are the line items reported? Accumulated Depreciation

Balance Sheet

Which of the following costs associated with long-lived assets are expensed, not capitalized? (Check all that apply.)

Immaterial repairs and maintenance Ordinary repairs and maintenance

Which of the following statements are true? (Check all that apply.)

Impairment loss on an asset arises from a precipitous decline in the current value of the asset. Depreciation of a truck equals the decline in the estimated usefulness of the truck.

On which financial statement are the line items reported? Depreciation Expense

Income Statement

What assets should be amortized using the straight-line method?

Intangible assets with limited lives

A company wishes to report the highest earnings possible according to GAAP. Therefore, when calculating depreciation for financial reporting purposes,

It will estimate the longest lives possible for its assets.

On January 11, Ace Electronics bought a new cash register for $2,500. In calculating depreciation expense for the year ended December 31, Ace's accountant will assume that the cash register was purchased on ______.

January 1

Which of the following should be capitalized when a piece of production equipment is acquired for a factory?

Sales Tax Transportation Costs Installation Costs

Both Spam Am Airlines and TWB Airlines used straight-line depreciation for a $20 million jet. Spam Am used an estimated 35 year useful life and TWB Airlines used an estimated 25 year life for its planes but estimated similar residual values. As result of the differences in useful lives, which company will appear more profitable?

Spam Am

How does management estimate useful lives and residual values?

They use professional judgment.

If a cost is capitalized, it is recorded as a(n) ________ , not an expense.

asset

Depreciation Expense of a long-lived asset calculated using the straight-line depreciation method will be a ______ amount each year.

constant

Recording depreciation is an application of the ______.

expense recognition (matching) principle

If a bond's stated rate is 4% and the market rate is 4%, this bond will sell at ______. Multiple choice question. a premium face value a discount

face value

Depreciation and impairment are different in that only ______.

impairment represents the decline in the current value of the related asset

Capitalized costs differ from expenses in that only capitalized costs result in a(n) ______.

increase to long-lived assets

The stated rate is the rate used to determine the ______. interest payment face value interest expense present value

interest payment

When a company capitalizes a cost, its ______ increase.

long-lived assets

The book (or carrying) value of equipment equals Equipment ______.

minus Accumulated Depreciation

The formula for the fixed asset turnover ratio equals ______.

net revenue/average net fixed assets

The estimated amount a long-lived asset is expected to be sold for at the end of its useful life is the ________ value.

residual

The formula for calculating double-declining-balance depreciation equals (Cost - _______ ________ ) x 2/useful life) Listen to the complete question

residual value

Another term for residual value is ___________value.

salvage

Another term for residual value is _______value.

salvage, scrap, or resale

In the case of a basket purchase, the cost of the land and building is ______.

split among the assets purchased in proportion to the market value of the assets as a whole

The entry to record the purchase of $10,000 of equipment by signing an $8,000 note and paying the rest with cash is recorded with a ______.

$10,000 debit to Equipment and $8,000 credit to Notes Payable and $2,000 credit to Cash

Which of the following is false when a bond is issued at a premium?

Interest expense will exceed the cash interest payments.

An asset's useful life ______. (Check all that apply.)

can be expressed in either years or units is the asset's expected economic life to its owner

Sunny Skys, Inc. bought a derelict hunting lodge, which it tore down at a cost of $45,000 and replaced with a new lodge. The demolition cost should be ______.

capitalized

Declining balance

usage and depreciation expense decrease as efficiency decreases

Units-of-production

usage and depreciation expense varies depending on actual usage

Long-lived assets are ______. (Check all that apply.)

used by the business assets acquired for use over 1 or more years

The journal entry to record the payment of salaries and wages for work performed in the current accounting period causes ______. (Select all that apply.) Multiple select question. stockholders' equity to decrease assets to increase liabilities to decrease liabilities to increase stockholders' equity to increase assets to decrease

stockholders' equity to decrease liabilities to increase assets to decrease

Straight-Line Depreciation

usage and depreciation expense are the same

Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance? (Check all that apply.)

$100 oil change on van $900 for cleaning the van during the year

The list price of a computer was $100,000. The sales tax on the computer was 5%. The delivery cost was $1,000. The cost to assemble the computer was $500. The Equipment account should be debited for a total of ______.

$106,500

X Circle Company purchased a computer system Black Box, Inc. with a list price of $100,000 plus 5% sales tax. The cost to deliver and install the computer was $10,000. The debit to Equipment equals

$115,000

Thornton Industries purchased a machine on July 1 for $45,000 and is depreciating it with the straight-line method over a life of 10 years, using a residual value of $3,000. Depreciation Expense for the machine for that year ended December 31 is

$2,100

Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $200. The cash register's depreciable cost equals ______.

$2,300

On October 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. What is depreciation expense for the year ended December 31 that year using double-declining-balance?

$3,750

On June 1, Ace Electronics bought a new cash register for $2,500. Ace plans to use the cash register for 4 years and then sell it for $100. If Ace uses straight-line depreciation, what is depreciation expense for the year ended December 31 that year?

$350

Shenandoah Skies built a new lodge for its ski resort. Which of the following costs should be capitalized? (Check all that apply.)

$4,200 paid in sales tax on the lumber to build the lodge $7,000 in architect fees $70,000 cost of lumber to build the lodge

Barber, Inc., depreciates its building on a straight-line basis. A building was purchased on January 1 that had an estimated useful life of 20 years and a residual value of $20,000. The company's Depreciation Expense for that year was $20,000 on the building. What was the original cost of the building?

$420,000

X-it Company, signed a $500,000, 5-year note payable to buy a new industrial machine. The company paid $2,000 cash for transportation of the machine and $1,000 cash for installation costs. The journal entry to record this transaction will include a ______. (Check all that apply.)

$500,000 credit to Note Payable $503,000 debit to Machinery $3,000 credit to Cash

On January 1, X-it Company bought a new delivery truck for $30,000. X-it plans to use the truck for 4 years, after which it will be sold for $6,000. Depreciation Expense for the 2nd year using double-declining-balance equals ______.

$7,500

Gross earnings for the pay period are $100,000. Required payroll deductions are: Social Security $6,700; Medicare $1,450; Federal Income tax $18,000 and State income tax $3,850. What is the net pay to employees? $78,150 $100,000 $70,000 $130,000 $61,850

$70,000

Assuming straight-line is used, which of the following is the formula for calculating revised annual depreciation?

(Book value-new residual value) x (1/remaining Useful life)

What is the formula for calculating units-of-production depreciation?

(Cost - residual value) x (actual production this period/estimated total production)

The formula for calculating straight-line depreciation is ______.

(cost - residual value) x (1/useful life)

X-it Company bought a new delivery truck. The manufacturer says that the truck should last for ten years and 120,000 miles. X-it plans to use the truck for 4 years, during which it will be driven 50,000 miles. What is the useful life of the truck for depreciation purposes? (Check all that apply.)

50,000 miles 4 years

Which of the following may lead to a revision of an estimate of a company's depreciation expense? (Check all that apply.)

A change in the estimated residual value A change in the estimated useful life Extraordinary repairs that significantly extend the asset's usefulness

A bond issued at a price of 103 and retired early at a price of 97. Which of the following is true?

A gain will be reported on the income statement when the bond is retired.

Assume PVH, the makers of Calvin Klein underwear, borrowed $100,000 from the bank to be repaid over the next five years, with principal payments beginning next month. Which of the following best describes the presentation of this debt in the balance sheet as of today (the date of borrowing)? $100,000 in the long-term liability section. $100,000 plus the interest to be paid over the five-year period in the long-term liability section. A portion of the $100,000 in the current liability section and the remainder of the principal in the long-term liability section. A portion of the $100,000 plus interest in the current liability section and the remainder of the principal plus interest in the long-term liability section.

A portion of the $100,000 in the current liability section and the remainder of the principal in the long-term liability section.

How many of the following statements regarding goodwill are true? -Goodwill is not reported unless purchased in an exchange -Private Companies can elect to amortize goodwill over 10 years or less. -Impairment of goodwill results in a decrease in net income.

All three

If management was to unethically capitalize costs that should not have been, which of the following would be misstated? (Select all that apply.)

Assets would be overstated. Stockholders' equity would be overstated.

Which of the following is true?

Capitalized costs increase long-lived assets.

The Simon Company and the Allen Company each bought a new delivery truck on January 1. Both companies paid exactly the same cost, $30,000, for their respective vehicles. Two years later, on December 31, the book value of Simon's truck was less than the Allen Company's book value for the same vehicle. Which of the following are acceptable explanations for the difference in book value?

Because GAAP specifies regarding the calculation of depreciation, this situation is not possible.

Which of these assets are not depreciated? (Select all that apply.)

Cash Inventory Land

Given each of the following start-up companies are identical except for the depreciation methods and estimates used, which company would report the higher net income in the first year?

Company B used straight-line and estimated useful lives of 5 years and $1,000 residual values.

Under what depreciation method(s) is an asset's book value used to calculate depreciation each year?

Declining-Balance Method

Which account is debited in an adjusting entry to record depreciation on machinery?

Depreciation Expense

Depreciation allocates the cost of a long-lived asset to _____.

Depreciation Expense over the periods the asset is used to generate revenue

Which of the following statements is correct?

Depreciation is not intended to report an asset at its current value.

Big Hitter Corp. is facing a class-action lawsuit in the upcoming year. It is possible, but not probable, that the company will have to pay a settlement of approximately $2,000,000 in the upcoming year. How would this fact be reported, if at all, in the financial statements prepared at the end of the current month using GAAP?

Describe the potential liability in the notes to the financial statements.

Which of the following may cause net income to differ among companies? (Check all that apply.)

Estimated useful lives Depreciation methods Estimated residual values

Which of the following best describes Accrued Liabilities?

Expenses incurred but not paid at the end of the accounting period.

As of December 31, 2018 Shutterfly, Inc. had 7,000 full-time and 12,500 part-time employees. Assume in the last pay period of the year, the company paid $8,000,000 to employees after deducting $2,000,000 for employee income taxes, $612,000 for FICA taxes and $700,000 for other purposes. No payments have been made to the government relating to these taxes. Which of the following statements is true regarding this pay period?

FICA Taxes Payable should be $1,224,000.

True or false: It doesn't matter which depreciation method you use, since all 3 methods calculate the same depreciation expense each year.

False

ACME, Inc., uses straight-line depreciation for all of its depreciable assets. ACME sold a used piece of machinery on December 31 that it had purchased two years earlier on January 1 for $10,000. When the asset was first acquired, its estimated life was five years and the estimated residual value was zero. At the time of disposal, Accumulated Depreciation was $4,000. If the sales price of the used machine was $7,500, the resulting gain or loss on disposal was which of the following amounts?

Gain of $1,500

Cedar Fair purchased land; which of the following should be debited to the Land account? (Check all that apply.)

Legal fees for the land's title search Fees for surveying of the land Commissions paid to brokers when purchasing the land

Which of the following does not impact the calculation of the cash interest payments to be made to bondholders?

Market interest rate.

The entry to record annual straight-line depreciation will decrease a company's ______.

Net Income Total Assets asset book value

When recording depreciation, which of the following statements is true?

None are true

________ _________ is a liability that represents the amount the company owes to others as a result of issuing a promissory note.

Notes Payable

On October 21, X-it Company bought a new delivery truck for $30,000. In calculating depreciation expense for the year ended December 31, X-it's accountant will assume that the truck was purchased on ______.

November 1

Which of the following entries result in a decrease in total assets and stockholders' equity?

The adjusting entry to record the depreciation of long-live assets

Why can depreciation expense be a different amount each year using the units-of-production method?

The method calculates expense based on the relationship between each year's output and total estimated output.

To determine if a bond will be issued at a premium, discount, or face value, one must know which of the following pairs of information?

The stated interest rate and the market interest rate on the date the bonds were issued.

What is the effect of recording depreciation expense on the accounting equation? (Check all that apply.)

Total assets decrease. Total stockholders' equity decreases.

Which of the following financial statement totals are reduced by the adjusting entry to record amortization? (Check all that apply.)

Total stockholders' equity on the balance sheet Total assets on the balance sheet Net income on the income statement

Acme, Inc., bought land and a building for $150,000. Acme plans to use the building for 20 years and then sell it. What is the useful life of the land?

Unlimited: Land does not depreciate and has an unlimited useful life.

When does impairment occur?

When circumstances interfere with the ability to recover the value of the asset through future operations

Assume Speedo International received $400,000 for long-term promissory notes that were issued on November 1. The notes pay interest on April 30 and October 31 at the annual rate of 6 percent, which was comparable to other interest rates in the market at that time. Which of the following journal entries would be required at December 31? Debit Credit a. Interest Expense. 4,000 Interest Payable 4,000 b. Interest Expense 4,000 Cash 4,000 c. Interest Expense 4,000 Interest Payable 8,000 Cash 12,000 d. Interest Expense 8,000 Interest Payable 4,000 Cash 12,000

a. Interest Expense. 4,000 Interest Payable 4,000

On-a-Roll, Inc. amortizes its copyright of $20,000 over 20 years. Miss Hap, the bookkeeper, forgot to record the amortization in the current year. The effect of this mistake causes ______. (Check all that apply.)

assets to be overstated net income to be overstated

The entry to record the issuance of a note for cash was recorded with a debit to Cash and a credit to Notes Receivable instead of Notes Payable. The effect of recording this entry causes ______. (Select all that apply.) Multiple select question. assets to be overstated assets to be understated liabilities to be understated stockholders' equity to be overstated liabilities to be overstated stockholders' equity to be understated

assets to be understated liabilities to be understated

Amortizing intangible assets affects the accounting equation by causing ______. (Check all that apply.)

assets to decrease stockholders' equity to decrease

An asset's cost minus accumulated depreciation is its ______ value.

book

The difference between the Equipment account and its Accumulated Depreciation is called the ________ value.

book/carrying

John Smith works 40 hours for ABC Corp. for $15 per hour. Required payroll deductions are: Social Security $37.20; Medicare $8.70; Federal Income Tax $58; and State Income Tax $10. Assuming the payroll deductions are paid in the following month, ABC would record John's pay with a journal entry that includes a ______. (Check all that apply.) debit to Salaries and Wages Expense of $486.10 credit to FICA (Social Security and Medicare) Payable of $45.90 debit to Salaries and Wages Expense of $600 credit to State and Federal Income Tax Payable of $68 credit to Cash of $486.10

credit to FICA (Social Security and Medicare) Payable of $45.90 debit to Salaries and Wages Expense of $600 credit to State and Federal Income Tax Payable of $68 credit to Cash of $486.10

On November 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31 of the following year. Given no prior adjusting entries have been recorded, the adjusting journal entry on December 31, ABC's year end, would include a ______. (Check all that apply.) Multiple select question. credit to Interest Payable of $1,000 credit to Cash of $1,000 debit to Interest Expense of $1,000 credit to Note Payable of $1,000 debit to Interest Expense of $6,000

credit to Interest Payable of $1,000 debit to Interest Expense of $1,000

Land O' Lakes, Inc., reported (in millions) Income from Operations of $206, Net Income of $160, Interest Expense of $63, and Income Tax Expense of $15. What was this dairy company's times interest earned ratio (rounded) for the year? a. 1.49 b. 2.53 c. 3.27 d. 3.78

d. 3.78

Thermal, Inc. bought a new office computer for $5,000 cash. The journal entry to record this transaction will include a $5,000 ______. (Check all that apply.)

debit to Equipment credit to Cash

ABC purchased $500 of merchandise on account. ABC's journal entry to record this transaction includes a ______. (Check all that apply.) Multiple select question. debit to Inventory of $500 credit to Inventory of $500 credit to Accounts Payable of $500

debit to Inventory of $500 credit to Accounts Payable of $500

The accountant recorded the adjusting entry for the depreciation of its long-lived assets with a debit to Depreciation Expense and a credit to Accumulated Depreciation. As a result of this entry, assets and stockholders' equity will be ______.

decreased

Depreciation ______.

decreases an asset's book value which is not necessarily equal to its current market value

Matching part of the cost of a long-lived asset with the revenues generated by the asset is ______.

depreciation