Accounting Chapter 9

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.) cash to be overstated liabilities to be understated assets to be overstated retained earnings to be understated net income to be overstated

assets to be overstated net income to be overstated

Thermal, Inc. bought a new office computer for $5,000 cash. The journal entry to record this transaction will include a $5,000 ______. credit to Equipment credit to Cash debit to Equipment debit to Cash debit to Equipment Expense

credit to Cash debit to Equipment

Depreciation Expense is reported on the ______. income statement as an operating expense income statement netted against the related long-lived asset balance sheet netted against the related long-lived asset balance sheet as an operating expense

income statement as an operating expense

Depreciation Expense is reported on the ______. income statement netted against the related long-lived asset balance sheet as an operating expense balance sheet netted against the related long-lived asset income statement as an operating expense

income statement as an operating expense

For long-lived assets that have been in use for more than one accounting period, Depreciation Expense on the ______ Accumulated Depreciation on the ______. income statement will be greater than; balance sheet balance sheet will be greater than; income statement income statement will be less than; balance sheet income statement will be equal to; balance sheet balance sheet will be equal to; income statement balance sheet will be less than; income statement

income statement will be less than; balance sheet

Acme, Inc. bought land and a factory building for $80,000. The land was appraised at $25,000 and the building at $75,000. Using the basket purchase allocation, Acme would record the ______. land at $20,000 and the building at $60,000 land and building at $80,000 land at $25,000 and the building at $75,000 land at $5,000 and the building at $75,000 land and building at $100,000 land at $25,000 and the building at $55,000

land at $20,000 and the building at $60,000

Assuming straight-line depreciation is used, a higher estimated useful life will result in a(n) _____ depreciation expense per year and a(n) _____ net income.

lower higher

A company should depreciate a long-lived tangible asset to ______. record the decrease in the market value of the asset as it gets older match part of the cost of the asset with the revenues generated by the asset decrease the total value of its assets, so that it can justify buying new ones report less income and pay less income tax

match part of the cost of the asset with the revenues generated by the asset

An asset's useful life ______. is the actual time the asset ends up being used is expressed in terms of time, not units of capacity may be expressed in terms of time or units of capacity

may be expressed in terms of time or units of capacity

The formula for the fixed asset turnover ratio equals ______. net revenue/average net fixed assets net income/average total assets average net fixed assets/total assets net revenue/total assets

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 or salvage

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 ______. $100,000; the rest should be expensed All of the costs should be expensed $105,000; the rest should be expensed $106,500 $100,500; the rest should be expensed

$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

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. The journal entry to record this transaction will include a ______. $320,750 debit to Machinery $315,000 debit to Machinery $750 debit to Installation Expense $5,750 credit to Cash $5,000 debit to Freight-in $315,000 credit to Note Payable

$320,750 debit to Machinery $5,750 credit to Cash $315,000 credit to Note Payable

On January 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 $200. If Ace uses straight-line depreciation, depreciation expense for the 1st year ended December 31 equals ______. $1,875 $2,300 $575 $1,925 $625

$575

Multiple Choice Question The Three Little Pigs purchased three houses for a total cost of $160,000. Appraisal values for the three completed houses were: straw house, $40,000; wood house $60,000; and brick house $100,000. Using the basket purchase allocation, the recorded value of the brick house should be ______. $100,000 $66,667 $53,333 $80,000

$80,000

Vango, Inc. bought a new delivery van during the year. Which of these costs should be expensed as ordinary repairs and maintenance? $40,000 cost of the van $900 for cleaning the van during the year $100 oil change on van $2,000 paid to install shelves inside the van

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

The formula for calculating straight-line depreciation is ______. cost x useful life (cost - residual value) x (1/useful life) cost/useful life (cost + residual value) x (1/useful life)

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

Select all of the items below in determining the cost of purchased equipment. Add the list price Subtract the purchase discount Subtract the sales tax Add the installation costs Add the sales tax Add the purchase discount Add the delivery costs

Add the list price Subtract the purchase discount Add the installation costs Add the sales tax Add the delivery costs

Vicious Cycle built a new building. Which of the following costs should be expensed? Sales tax on the lumber Cost of lumber Architect fees Party to celebrate grand opening

Party to celebrate grand opening

The adjusting entry to record depreciation debits ___ ___ and ___ ___ credits

Blank 1: Depreciation Blank 2: Expense Blank 3: Accumulated Blank 4: Depreciation

True or false: Land is not depreciated.

True

Which of the following would cause the balance sheet to appear stronger and income statement to appear more profitable than it should? Recording costs as Construction in Progress even though the asset is completed. Expensing costs that should be capitalized. Capitalizing costs that should be expensed. Recording the costs of merchandise purchased on account.

Capitalizing costs that should be expensed.

Which depreciation method results in higher depreciation expense when the asset is used more? Units-of-production Declining-balance Straight-line

Units-of-production

The journal entry to record depreciation include which of the following? Credit Depreciation Expense Debit Accumulated Depreciation Credit Accumulated Depreciation Debit Depreciation Expense

Credit Accumulated Depreciation Debit Depreciation Expense

Which of the following costs associated with long-lived assets are expensed, not capitalized? Delivery costs Immaterial repairs and maintenance Ordinary repairs and maintenance Installation costs

Immaterial repairs and maintenance Ordinary repairs and maintenance

Straight-line, units-of-production, and declining-balance are commonly used _____ methods.

depreciation or amortization

Straight-line, units-of-production, and declining-balance are commonly used _____ methods.

Depreciation

_____ is the allocation of the cost of a long-lived, tangible asset over its useful life creating an expense on the income statement that is matched against the revenue generated by using the asset.

Depreciation

Which of these are long-lived productive assets? Cash Inventory Retained earnings Delivery equipment Machinery

Machinery Delivery equipment

The expenditure incurred for changing the oil in the company's fleet of trucks is debited to ______. Equipment Repairs and Maintenance Expense Cash Extraordinary Costs Repairs and Maintenance Revenue

Repairs and Maintenance Expense

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 Neither, the estimated useful lives will not affect their profitability. TWB

Spam Am

Acme Enterprises just bought a new manufacturing machine. Which of these costs should be capitalized? The $15,000 freight bill to deliver the machine to Acme's factory The $500,000 invoice price of the machine The $100 increase in monthly utility bills to operate the machine The $200 annual increase in personal property taxes, based on the cost of the machine The $500 annual increase in insurance premiums, based on the cost of the machine The $8,000 cost of tearing down Acme's factory wall to get the machine inside

The $15,000 freight bill to deliver the machine to Acme's factory The $500,000 invoice price of the machine The $8,000 cost of tearing down Acme's factory wall to get the machine inside

Which of the following entries result in a decrease in total assets and stockholders' equity? The adjusting entry to record the interest owed on a note issued when purchasing a long-lived asset The adjusting entry to record the depreciation of long-live assets Payment of extraordinary repairs that significantly improves the effectiveness of a long-lived asset Recording a purchase as a capital expenditure

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

Busy Beaver, Inc. signed a $315,000, 5-year note payable to buy a new $315,000 industrial veneer cutter. Busy Beaver paid $5,000 cash for transportation of the machine and $750 cash for installation costs. What is the overall effect of this transaction on the accounting equation? Machinery, an asset, increases $315,000. Total assets increase $315,000. Total liabilities increase $320,750. Total assets increase $309,250. Machinery, an asset, increases $320,750. Total liabilities increase $315,000.

Total assets increase $315,000. Machinery, an asset, increases $320,750. Total liabilities increase $315,000.

Executives at WorldCom committed an $11 billion fraud by capitalizing costs that should have been expensed. What was the effect of this fraud on WorldCom's balance sheet? Total assets were too high. Total assets were too low. Retained earnings were too high. Retained earnings were too low.

Total assets were too high. Retained earnings were too high.

X-it Company signed a $500,000, 5-year note payable to buy a new machine. The company paid $2,000 cash for transporting and $1,000 cash for installing the machine. What is the effect of this transaction on the accounting equation? Total liabilities increase $503,000. Total liabilities increase $500,000. Machinery, an asset, increases $503,000. Total assets increase $503,000. Total assets increase $500,000. Machinery, an asset, increases $500,000.

Total liabilities increase $500,000. Machinery, an asset, increases $503,000. Total assets increase $500,000.

What is the effect of recording depreciation expense on the accounting equation? Total stockholders' equity decreases. Total assets increase. Total liabilities decrease. Total stockholders' equity increases. Total liabilities increase. Total assets decrease.

Total stockholders' equity decreases. Total assets decrease.

Tangible assets are first recorded at ______. cost minus residual (or salvage) value the amount of cash paid for them current market value or resale value all costs to acquire them and prepare them for use

all costs to acquire them and prepare them for use

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

asset

An asset's cost minus accumulated depreciation is its ______ value. salvage market book residual

book

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

book or carrying

An asset's useful life ______. (Check all that apply.) can be expressed in either years or units is the asset's economic life for all of its potential owners must be at least five years if the asset is to be depreciated is the asset's expected economic life to its owner

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

The old Metropolitan Theater, which had been unused for years, was purchased for $1, renovated at a cost of $3.5 million, and then reopened for business. The renovation cost should be ______. capitalized as part of the cost of the theater ignored, since it is not part of the original purchase price expensed in the accounting period(s) when the renovation took place

capitalized as part of the cost of the theater

Sunny Sky paid $30,000 cash for a piece of land to be used for a new corporate headquarters building. The journal entry to record this transaction will include a $30,000 ______. debit to Building debit to Cash debit to Land Expense debit to Land credit to Land credit to Cash

debit to Land credit to Cash

On-a-Roll, Inc. amortizes its patent of $20,000 over 20 years. The adjusting entry to record amortization results in a(n) ______. (Check all that apply.) decrease to net income on the income statement increase to liabilities on the balance sheet increase to net income on the income statement increase to assets on the balance sheet decrease to assets on the balance sheet

decrease to net income on the income statement decrease to assets on the balance sheet

Ordinary repairs and maintenance costs should be ______. expensed as incurred added to the cost of the asset capitalized depreciated over the life of the related asset

expensed as incurred

Capitalized costs differ from expenses in that only capitalized costs result in a(n) ______. increase to liabilities decrease to stockholders' equity increase to long-lived assets

increase to long-lived assets

A productive asset ______. is used to produce goods or services that will be sold to customers is the same as stockholders' equity will be used up within 1 year from the balance sheet date is part of inventory

is used to produce goods or services that will be sold to customers

Which of these assets are not depreciated? (Select all that apply.) land equipment inventory cash machinery buildings

land inventory cash

The formula for the fixed asset turnover ratio equals net _____ divided by average net fixed assets.

sales or revenue

Another term for residual value is _____ value.

salvage, scrap, or resale