Ch. 9 & 10 Accounting Questions

Unlike other assets that can be sold individually in the marketplace, goodwill can be identified only with the business as a whole T/F

True

the allocation of the cost of a natural resource to expense in a rational and systematic manner

Depletion

Cost to construct a plant includes the contract price, architect's fees, building fees, excavation costs nut not interest costs incurred to finance the project T/F

False

Ordinary repairs are expenditures to increase the operating efficiency, productive capacity, or expected useful life of a plant asset T/F

False

Short-term receivables are reported in the balance sheet immediately below cash T/F

False

The allowance method for uncollectible accounts violates the expense recognition principle T/F

False

The maturity date of a 60-day note dated December 1 is January 31. T/F

False

The principal amount of 9%, 3-year, note receivable is $300,000 and is dated January 1, 2014. The interest revenue to be recognized on December 31, 2014 is $9,000. T/F

False

The process of allocating the cost of natural resources to expense is called amortization T/F

False

A right to sell certain products or services or to use certain trademarks or trade names within a designated geographic area

Franchise

Rights, privileges, and competitive advantages that result from the ownership of long-lived assets that do not possess physical substance.

Intangible Assets

Costs incurred by a company that often lead to patents or new products. These costs must be expensed as incurred

Research and Development Costs

An aging schedule shows a required balance in Allowance for Doubtful accounts of $8,600. If there is a credit balance in the allowance account of $2,000 prior to adjustment, the adjustment amount is $6,600 T/F

True

Financing charges added to a customer's credit card balance with a retailer are as a debit to Accounts Receivable and a credit to Interest Revenue T/F

True

Receivables are classified as accounts, notes, or other. T/F

True

Sale of receivables to a factor may result in a debit to Service Charge Expense at the time of sale T/F

True

The book value of an asset equals its cost less accumulated depreciation T/F

True

The cost of equipment consists of the cash purchase price plus certain related costs such as sales taxes and freight charges. T/F

True

The interest due at maturity of a two-month, 8%, $800 note is computed by multiplying $800 x .08 x 2/12 T/F

True

The maturity value of a $5,000 note is $5,300. If $180 of the interest has been accrued prior to maturity, the entry to record the honoring of the note at maturity should include a credit to Interest Revenue for $120 T/F

True

The useful life of a copyright is generally shorter than its legal life T/F

True

Under the declining-balance method of depreciation, an asset may not be depreciated below its estimated salvage value. T/F

True

Bennie Razor Company has decided to sell one of its old manufacturing machines on June 30, 2017. The machine was purchased for $80,000 on January 1, 2013, and was depreciated on a straight-line basis for 10 years assuming no salvage value. If the machine was sold for $26,000, what was the amount of the gain or loss recorded at the time of sale? a) $18,000 b) $54,000 c) $22,000 d) $46,000

a) $18,000

On January 1, a machine with a useful life of 5 years and a salvage value of $8,000 was purchased for $160,000. What is the depreciation expense in year 2 under the double-declining balance method? a) $38,400 b) $36,480 c) $25,600 d) $24,320

a) $38,400

Accounts and notes receivables are reported in the current assets section in the balance sheet at: a) cash (net) realizable value b) net book value c) lower-of-cost-or-net realizable value d) invoice cost

a) cash (net) realizable value

A company sells $400,000 of accounts receivable to a factor to cash less a 2% service charge. The entry to record the sale should not include a a) debit to Interest Expense for $8,000 b) debit to Cash for $392,000 c) debit to Service Charge Expense for $8,000 d) credit to Accounts Receivable for $400,000

a) debit to Interest Expense for $8,000

Which of the following approaches for bad debts is best described as a balance sheet method? a) percentage-of-receivables method b) Direct Write-off method c) Percentage-of-sales basis d) Both percentage-of-receivables and direct write-off method

a) percentage-of-receivables

Jefferson company purchased a piece of equipment on January 1, 2017. The equipment cost $60,000 and has an estimated life of 8 years and a salvage value of $8,000. What was the depreciation expense for the asset for 2018 under the double-declining balance method? a) $6,500 b) $11,250 c) $15,000 d) $6,562

b) $11,250

A company has net credit sales of $600,000 for the year and it estimates that uncollectible accounts will be 2% of sales. If Allowance for Doubtful Accounts has a credit balance of $1,000 prior to adjustment, its balance after adjustment will be a credit of a) $12,000 b) $13,000 c) $11,000 d) some other account

b) $13,000

Martha Beyerlein Company incurred $150,000 of research and development costs in its labratory to develop a patent granted on January 2, 2017. On July 31, 2017, Beyerlein paid $35,000 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2017, should be: a) $150,000 b) $35,000 c) $185,000 d) $170,000

b) $35,000

Depreciation is the process of: a) valuation b) cost allocation c) cash accumulation d) appraisal

b) cost allocation

When there is change in estimated depreciation: a) previous depreciation should be corrected b) current and future year's depreciation should be revised c) only future years' depreciation should be revised d) none of the above

b) current and future year's depreciation should be revised

An asset that cost $80,000 and has accumulated depreciation of $60,000 is sold for $12,000. The journal entry would include ' a) debit t loss on Disposal of Plant Assets of $20,000 b) debit to loss on Disposal of Plant Assets of $8,000 c) credit to Gain on Disposal of Plant Assets of $8,000 d) credit to accumulated depreciation for $60,000

b) debit to loss on Disposal of Plant Assets of $8,000

Ann Torbert purchased a truck for $11,000 on January 1, 2016. The truck will have an estimated salvage value of $1,000 at the end of 5 years. Using the units-of-activity method, the balance in accumulated depreciation at December 31, 2017, can be computed by the following formula: a) ($11,000 / Total esimated activity) x Units of activity of 2017 b) ($10,000 / total estimated activity) x units of activity for 2017 c) ($11,000 / total estimated activity) x units of activity for 2016 and 2017 d) ($10,000 / total estimated activity) x units of activity for 2016 and 2017.

c) ($11,000 / total estimated activity) x units of activity for 2016 and 2017

When an interest-bearing note is dishonored at maturity and ultimate collection is expected, the entry for the dishonoring, assuming no previous accrual of interest, should include a) a debit to Allowance for Doubtful Accounts b) only a credit to Notes Receivable c) a credit to Notes Receivable and Interest Revenue d) a credit to Notes Receivable and Interest Receivable

c) a credit to Notes Receivable and Interest Revenue

One of the following statements about promissory notes is incorrect. The incorrect statement is: a) the party making the promise to pay is called the maker b) the party to whom payment is to be made is called the payee c) a promissory note is not a negotiable instrument d) a promissory note is often required from high-risk customers

c) a promissory note is not a negotiable instrument

The sale of merchandise by a company on its own credit card may result in a a) debit to Service Charge Expense b) debit to Interest Expense c) credit to Interest Revenue d) credit to Cash

c) credit to Interest Revenue

Maggie Sharrer company expects to extract 20 million tons of coal from a mine that cost $12 Million. If no salvage value is expected and 2 million tons are mined in the first year; the entry to record depletion will include a: a) debit to accumulated depreciation b) credit to Depletion Expense of $1,200,000 c) debit to Inventory of $1,200,000 d) credit to Accumulated Depreciation of $2,000,000

c) debit to Inventory of $1,200,000

The cost a factory machine includes all of the following costs except a) invoice price less discount taken b) sales tax and insurance during shipping c) three-year insurance policy on the machine d) testing and installation cost

c) three-year insurance policy on the machine

Which of the following statements about Visa credit card sales is incorrect? a) the credit card issuer makes the credit investigation of the customer' b) the retailer is not involved in the collection process c) two parties are involved d) the retailer receives cash more quickly than it would from individual customers on account

c) two parties are involved

An exclusive right granted by the federal government to reproduce and sell an artistic or published work

copyrights

Able Towing Company purchased a tow truck for $60,000 on January 1, 2015. It was originally depreciated on a straight-line basis over 10 years with an assumed salvage value of $12,000. On December 31, 2017, before adjusting entries had been made, the company decided to change the remaining estimated life to 4 years (including 2017) and the salvage value to $2,000. What was the depreciation expense for 2017? a) $6,000 b) $4,800 c) $15,000 d) $12,100

d) $12,100

Micah Barlett Company purchased equipment on January 1, 2016, at a total invoice cost of $400,000. The equipment has an estimated salvage value of $10,000 and an estimated useful life of 5 years. The amount of accumulated depreciation at December 31, 2017, if the straight-line method of depreciation is used, is: a) $80,000 b) $160,000 c) $78,000 d) $156,000

d) $156,000

Erin Danielle Company purchased equipment and incurred the following costs. Cash Price $24,000 Sales Taxes $1,200 Insurance during Transit 200 Installation and Testing 400 Total costs $25,800 What amounts should be recorded as the cost of the equipment? a) $24,000 b) $25,200 c) $25,400 d) $25,800

d) $25,800

Under the allowance method, the entry to write-off an uncollectible account results in a debit to a) Bad Debt Expense and a credit to Accounts Receivable b) Bad Debt Expense and a credit to Allowance for Doubtful accounts c) Allowance for Doubtful Accounts and a Credit to Bad Debt Expense d) Allowance for Doubtful Accounts and a credit to Accounts Receivable

d) Allowance for Doubtful Accounts and a credit to Accounts Receivable

Additions to plant assets are: a) revenue expenditures b) debited to the Maintenance and Repairs Expense c) debited to Purchases Account d) Capital Expenditures

d) Capital Expenditures When an addition is made to plant assets, it is intended to increase productive capacity, increase the assets' useful life, or increase the efficiency of the assets. This is called Capital Expenditure.

The exclusive right to reproduce and sell an artistic or published work is called a a) patent b) trademark c) license d) copyright

d) copyright

Which one of the following statements is false? a) if an intangible asset has a finite life, it should be amortized b) the amortization period of an intangible asset can exceed 20 years c) goodwill is recorded only when a business is purchased d) research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.

d) research and development costs are expensed when incurred, except when the research and development expenditures result in a successful patent.