ACC 201 Exam 3

The Open Grill incurred the following costs in acquiring a new piece of land: Cost of the land$ - 80,000 Commissions - 4,800 Liability insurance for the first year - 1,200 Cost of removing existing building - 20,000 Sale of salvaged materials - (4,000) Total costs - $102,000 What is the total recorded cost of the land?

$100,800.

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month?

$500.

The Cheese Factory incurred the following costs related to acquiring a new piece of equipment: Cost of the equipment - $50,000 Sales tax (8%) - 4,000 Shipping - 3,000 Installation - 2,000 Depreciation during the first month - 1,000 Total costs - $60,000 What is the total recorded cost of the equipment?

$59,000.

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck's residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation?

$8,000.

Accumulated depreciation is:

A contra-asset.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

A debit to a liability and a credit to a revenue account.

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account.

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Example of a properly recorded as an intangible asset?

A purchased patent.

If equipment is retired, which account would be debited?

Accumulated depreciation.

Example of an expenditure should be capitalized?

An improvement to a tangible asset.

The asset's cost less accumulated depreciation is called:

Book value.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

Example of something reported as a current liability?

Current portion of long-term debt.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4,000.

Correctly describe the nature of depreciation

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Which depreciation method typically results in the highest depreciation expense during the first year of an asset's life?

Double declining balance method.

The Italian Pizza Company purchased land as a factory site for $90,000. Prior to construction of the new building, the land had to be cleared of trees and brush. Construction costs incurred during the first year are listed below: Land clearing costs - $5,000 Sale of firewood to a worker - (400) Architect fees (for new building) - 30,000 Title investigation of land - 3,500 Property taxes on land (for the first year) - 3,000 Building construction costs - 400,000 Determine the amounts that the company should record in the land and the new building accounts.

Land clearing cost - $5,000 Sale of firewood to a worker - (400) Title investigation of land - 3,500 Purchase price of land - 90,000 Architect fees (for new building - 30,000 Building construction cost - 400,000 Totals - Land -$98,100 Building - $430,000

Example of an expenditure that should be recorded as an expense?

Ordinary repairs and maintenance.

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would:

Record a lease asset, record a lease liability, record a lease for the present value of the 24 lease payments

Interest expense is recorded in the period in which:

The interest is incurred.

The amount of the gain on the sale of equipment equals:

The selling price minus the book value of the equipment.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month?

$2,542.

On January 1, 2021, Julee Enterprises borrows $30,000 to purchase a new Toyota Highlander by agreeing to a 6%, 4-year note with the bank. Payments of $704.55 are due at the end of each month with the first installment due on January 31, 2021. Record the issuance of the note payable and the first two monthly payments.

1 - January 01, 2021 - Equipment debit 30,000.00 Notes Payable credit 30,000.00 2 - January 31, 2021 - Notes Payable debit 554.55 Interest Expense debit 150.00 Cash credit 704.55 3 - February 28, 2021 - Notes Payable debit 557.32 Interest Expense debit 147.23 Cash credit 704.55

Something that is not a primary source of long-term debt financing

Accounts payable.

Example of an expenditure that should be recorded as an asset?

An addition which increases future benefit.

Great Harvest Bakery purchased bread ovens from New Morning Bakery. New Morning Bakery was closing its bakery business and sold its two-year-old ovens at a discount for $700,000. Great Harvest incurred and paid freight costs of $35,000, and its employees ran special electrical connections to the ovens at a cost of $5,000. Labor costs were $37,800. Unfortunately, one of the ovens was damaged during installation, and repairs cost $4,000. Great Harvest then consumed $900 of bread dough in testing the ovens. It installed safety guards on the ovens at a cost of $1,500 and placed the machines in operation. Complete the following schedule to show the amount at which the ovens should be recorded in Great Harvest's Equipment account.

Labor costs - $37,800 Freight costs - 35,000 Electrical connections - 5,000 Bread dough used in testing ovens - 900 Safety guards - 1,500 Purchase price -700,000 Total equipment - $780,200