Accounting Final (Ch.9 &12)

Team Shirts, Inc. sold a piece of equipment for $16,000. The carrying value of the equipment was $17,000. The original cost of the equipment was $25,000. A loss on the sale of $1,000 was reported. The amount of net cash from (or used) for INVESTING activities is ________. A) $16,000 B) $(1,000) C) $17,000 D) $(25,000)

A) $16,000

Equipment with a book value of $8,000 is sold for $3,000 cash. The statement of cash flows will report a: A) $3,000 cash inflow in the investing activities section. B) $5,000 cash outflow in the operating activities section. C) $3,000 cash inflow in the operating activities section D) $5,000 cash outflow in the financing activities section.

A) $3,000 cash inflow in the investing activities section.

On November 1, 2011, Frigate Shipping Company bought equipment that cost $400,000, with an estimated useful life of 8 years and an estimated salvage value of $28,000. The company uses the straight-line method of depreciation and has a fiscal year ending on October 31. For the year ended October 31, 2012, Frigate Company will report depreciation expense of ________. A) $46,500 B) $50,000 C) $33,333 D) $31,000

A) $46,500 400000-28000=372000 372000/8=46500

Net cash provided by operating activities under the indirect method must be ________ net cash provided by operating activities under the direct method. A) equal to B) smaller than C) larger than D) none of the above

A) equal to

The statement of cash flows is designed to ________. A) reconcile the differences between the beginning and ending balances in the cash account B) explain the difference between the sources and uses of cash C) reconcile the differences between net income and the ending cash balance D) explain the changes in assets

A) reconcile the differences between the beginning and ending balances in the cash account

DFS Company sold an asset for $8,500 in cash. The asset had a historical cost of $30,000 and accumulated depreciation of $20,000 on the day it was sold. How much is the gain or loss on the sale? A) $10,000 loss B) $1,500 loss C) $1,500 gain D) $21,500 loss

B) $1,500 loss 30,000 - 20,000 10,000 - 8,500 = 1,500 loss

Tango Company purchased land and a building for $350,000. If the assets had been purchased separately, the company would have paid $170,000 for the land and $210,000 for the building. What amount should be recorded for the BUILDING? A) $188,901 B) $193,421 C) $210,000 D) $199,000

B) $193,421 Weight of Building = 210000/(170000 + 210000) Value of Building = Purchase Cost x Weight of Building = 350000*210000/(170000 + 210000) = 193421

To prepare the statement of cash flows using the indirect method ________ net income. A) a decrease in inventory is subtracted from B) a decrease in accounts payable is subtracted from C) cash paid for dividends is added to D) a purchase of a machine is subtracted from

B) a decrease in accounts payable is subtracted from

Team Shirts, Inc. purchased $10,000 worth of treasury stock, paid $5,000 of its accounts payable, and paid $500 in dividends. The amount of net cash from (or used) for FINANCING activities is ________. A) $13,500 B) $10,500 C) $(10,500) D) $(13,500)

C) $(10,500)

The expected cash value of a plant asset at the end of its useful life is known as: A) residual value. B) salvage value. C) scrap value. D) all of the above.

D) all of the above.

A company incurred the following costs: Purchase price of land $210,000 Survey fees 1,000 Payment for demolition of old building on land 30,000 Back property taxes on land 2,000 Paving costs for parking lot 40,000 Fence around perimeter of land 15,000 Lights in parking lot 90,000 Signs for new business 5,000 What is the cost of the land? A) $243,000 B) $210,000 C) $298,000 D) $283,000

A) $243,000 Purchase price of land 210,000 Survey fees 1,000 Payment for demolition of old buiding on land 30,000 Back property taxes on land 2,000

Land, a building and equipment are acquired for a lump sum of $1,000,000. The market values of the land, building and equipment are $300,000, $600,000 and $300,000, respectively. What is the cost assigned to the equipment? A) $250,000 B) $333,333 C) $200,000 D) $300,000

A) $250,000 (Lump sum amount / Total Market Values) x Market Value of Equipment (1,000,000 / 300,000+ 600,000 + 300,000) x 300,000 (1,000,000 / 1,200,000) x 300,000 0.83 x 300,000 = 250,000

XYZ Company owns an asset with historical cost of $75,000, estimated useful life of 10 years, and salvage value of $5,000. As of December 31, 2011, the asset has accumulated depreciation of $49,000 after adjustment. The company still owes $20,000 in liabilities from the purchase of the asset years ago. What is the asset's book value on December 31, 2011? A) $26,000 B) $70,000 C) $21,000 D) $6,000

A) $26,000 It's asking for asset's book value, so Cost of Asset - Accumulated Depreciation 75,000 - 49,000 = 26,000

RET Company uses the activity (units-of-production) method to depreciate long-term assets. The company owns a truck that cost $24,000. The truck is estimated to have a salvage value of $2,000 and a useful life of 200,000 miles. How much depreciation expense would be reported on the income statement in a year in which the truck is driven 50,000 miles? A) $5,500 B) $5,000 C) $6,500 D) $6,000

A) $5,500 Units-of-production method: 24,000 - 2,000 = 22,000 22,000 / 200,000 miles = 0.11 0.11 x 50,000 miles = 5,500

Use the following selected information from XYZ Corporation to determine the asset turnover ratio for the year. Beginning total assets $150,000 Ending total assets $130,000 Net income $65,000 Interest $5,000 Total revenue $270,000 Total operating expenses $200,000 A) 1.93 B) 2.25 C) 0.50 D) 0.35

A) 1.93 Asset turnover ratio = Sales / Average Total Assets 270,000 / ((150,000 + 130,000) /2) 270,000 / 140,000 = 1.93

On January 1, 2011, Ace Electronics purchased a patent for $2,000,000 cash, which allows Ace the exclusive legal right to manufacture a new microchip for the next 20 years. However, Ace thinks that the useful life of the patent is only 5 years because rapid changes in technology will make the microchip obsolete. For 2011, Ace should report ________. A) amortization expense of $400,000 B) depreciation expense of $100,000 C) depreciation expense of $400,000 D) amortization expense of $100,000

A) amortization expense of $400,000

Cash proceeds from the sale of land is a(n) ________ activity on the statement of cash flows. A) investing B) indirect C) financing D) operating

A) investing

The following information is available for two different retailers, both of whom began business this year Cash flows from: (in 000's) Gnu Co. Lube Co. Operating Activities $ (50,000) $ 60,000 Investing Activities 30,000 (90,000) Financing Activities 40,000 50,000 Net increase in cash $20,000 $20,000 Which company would you expect to have future financial troubles? A) Neither Gnu Co. nor Lube Co. B) Gnu Co. C) Both Gnu Co. and Lube Co. D) Lube Co.

B) Gnu Co.

Depreciation expense, using the indirect method of preparing the statement of cash flows, is ________. A) subtracted from investing activities B) added to net income C) added to investing activities D) subtracted from net income

B) added to net income

Repayment of a loan is a(n) ________ activity on the statement of cash flows. A) operating B) financing C) indirect D) investing

B) financing

Tony Company sells a piece of equipment for $20,000 cash. The equipment has a historical cost of $60,000 and accumulated depreciation of $50,000. What is the gain or loss on sale of the equipment? A) $10,000 Loss B) $20,000 Loss C) $10,000 Gain D) $20,000 Gain

C) $10,000 Gain

WDS Company owns a patent with an estimated useful life of 15 years, a zero salvage value, and a historical cost of $42,000. Net income is $200,000 BEFORE the year-end adjustment related to the patent. What will net income be AFTER the proper year-end adjustment has been made? A) $200,000 B) $202,800 C) $197,200 D) $194,000

C) $197,200 42,000/15 years = 2,800 200,000 - 2,800 = 197,200

Which of the following best indicates that a company is expanding/growing? A) Positive cash flow from financing activities B) Negative cash flow from financing activities C) Negative cash flow from investing activities D) Positive cash flow from investing activities

C) Negative cash flow from investing activities

A use of cash for investing activities is ________. A) payment of dividends B) cash used to purchase treasury stock C) cash used to buy equipment D) payment of an account payable

C) cash used to buy equipment

Smiley Corporation sold equipment costing $70,000 with $65,000 of accumulated depreciation for $10,000 cash. Which of the following journal entries should be prepared? A) debit Cash for $5,000, debit Accumulated Depreciation for $65,000 and credit Equipment for $70,000 B) debit Cash for $10,000, credit Equipment for $5,000 and credit Gain on Sale of Equipment for $5,000 C) debit Cash for $10,000, debit Accumulated Depreciation for $65,000, credit Equipment for $70,000 and credit Gain on Sale of Equipment for $5,000 D) debit Cash for $10,000 and credit Gain on Sale of Equipment for $10,000

C) debit Cash for $10,000, debit Accumulated Depreciation for $65,000, credit Equipment for $70,000 and credit Gain on Sale of Equipment for $5,000

Cash involved in financing activities includes cash ________. A) paid for interest B) collected from customers C) paid for dividends ​D) paid for land

C) paid for dividends

Analysts use the statement of cash flows to measure ________. A) the amount of the company's obligations B) the profitability of a company C) the amount of excess cash generated by operating activities D) all of these

C) the amount of excess cash generated by operating activities

All of the following costs would be included in the Land account when land is purchased EXCEPT ________. A) costs to prepare the land for use such as removing a tree stump B) the fee paid to transfer title to the land C) the costs associated with paving a parking lot on the land D) the realtor's fee

C) the costs associated with paving a parking lot on the land

In 2014, First Company purchased Second Company for $16,000,000 cash. At the time of purchase, Second Company's assets had a fair market value of $28,000,000 and the liabilities had a fair market value of $13,000,000. At the time of purchase, Second Company's assets had a book value of $10,000,000 and the liabilities had a book value of $7,000,000. What amount of goodwill is recorded? A) $12,000,000 B) $13,000,000 C) $3,000,000 D) $1,000,000

D) $1,000,000 Purchase Consideration = Fair value of assets - Fair value of liabilities Purchase Consideration = 28,000,000 - 13,000,000 = 15,000,000 Goodwill = Excess of cash paid - Purchase Consideration Goodwill = 16,000,000 - 15,000,000 = 1,000,000

Team Shirts, Inc. collected $16,000 from accounts receivable, paid $10,000 of its accounts payable and paid $1,000 in interest. The amount of net cash from (or used) for OPERATING activities is ________. A) $(6,000) B) $6,000 C) $(5,000) D) $5,000

D) $5,000

Able Company bought a machine on January 1, 2008 for $80,000. At the time the machine was purchased it was estimated to have an 8-year useful life and a $4,000 salvage value. Able uses straight-line depreciation. During 2014, before the adjusting entry for depreciation was made, Able revised the estimated useful life of the machine to a total of ten years, with an estimated salvage value of $0. How much depreciation expense should the company report for the year ended December 31, 2014? A) $5,000 B) $9,500 C) $4,400 D) $5,750

D) $5,750 80,000 - 4,000 = 76,000 76,000 / 8 year useful life = 9,500 9,500 x 6 years used up = 57,000 Book Value = 80,000 - 57,000 = 23,000 23,000 / (10 total years - 6 years used up) = 23,000 / 4 years = 5,750

Lorenzo Corporation purchased equipment on January 1, 2015 for $500,000. The equipment had an estimated useful life of 5 years and an estimated salvage value of $50,000. After using the equipment for 2 years, the company determined that the equipment could be used for an additional 6 years and have a salvage value of $9,000. Assuming Lorenzo Corporation uses straight-line depreciation, compute depreciation expense for the year ending December 31, 2017. A) $48,500 B) $53,333 C) $45,000 D) $51,833

D) $51,833 Depreciation Expense = (Purchase Equipment - Salvage Value) / Useful Life Depreciation Expense = (500,000 - 50,000) / 5 = 90,000 Accumulated Depreciation = 90,000 x 2 = 180,000 Book Value = Purchase Equipment - Accumulated Depreciation Book Value = 500,000 - 180,000 = 320,000 Revised Depreciation Expense = (Book Value - Salvage Value*) / (Total Useful Life - Used Life) Revised Depreciation Expense = (320,000 - 9,000) / 8 - 2 = 51,833

A company purchased a machine for $200,000 many years earlier. The accumulated depreciation on the machine is $150,000. The machine is scrapped. Which journal entry is prepared to record the disposal? A) debit Accumulated Depreciation for $150,000 and credit Machine for $150,000 B) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation $50,000 and credit Machine for $100,000 C) debit Accumulated Depreciation for $200,000, credit Machine for $150,000 and credit Gain on Disposal of Machine for $50,000 D) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation for $150,000 and credit Machine for $200,000

D) debit Loss on Disposal of Machine for $50,000, debit Accumulated Depreciation for $150,000 and credit Machine for $200,000

Which intangible asset is NOT amortized? A) trademarks B) copyrights C) patents D) goodwill

D) goodwill

The difference between the direct and indirect methods applies only to the ________ activities section(s) of the statement of cash flows. A) investing B) operating and investing C) investing and financing D) operating

D) operating

Which method of preparing the statement of cash flows would show increases in accounts receivable being subtracted from net income? A) No method shows increases in accounts receivable being subtracted from net income. B) the direct method C) accrual basis method D) the indirect method

D) the indirect method

The indirect method for the preparation of the statement of cash flows starts ________. A) by converting every number on the income statement to its cash amount B) by estimating the sources of cash and the uses of cash C) with cash collected from customers D) with net income and makes adjustments for all the items that are not cash

D) with net income and makes adjustments for all the items that are not cash