Exam 02 Review Pt 2

Which of the following is reported as a current liability? Notes payable due in two years. Notes payable due in 15 months. Current portion of long-term debt. Unused line of credit.

Current portion of long term debt

Which of the following is not deducted from an employee's salary? Multiple Choice FICA taxes. Unemployment taxes. Income taxes. Employee portion of insurance and retirement payments.

Unemployment taxes

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record No gain or loss. A gain of $10,000. A loss of $10,000. A loss of $40,000.

A loss of $10,000 95,000-3000=65,000 55,000-65,000= -10,000

Which of the following is not a current liability? Notes payable due in six months. Current portion of long-term debt. An unused line of credit. Deferred revenue to be earned in nine months.

An unused line of credit

Which of the following is not included in calculating the acid-test ratio? Accounts receivable. Current investment in marketable securities. Accounts payable. Inventory.

Inventory

An exclusive 20-year right to manufacture a product or to use a process is a: Patent. Copyright. Trademark. Franchise.

Patent

Which of the following statements is false regarding the amortization of intangible assets? Intangible assets with a limited useful life are amortized. The service life of an intangible asset is always equal to its legal life. The expected residual value of most intangible assets is zero. Goodwill is the most common intangible asset with an indefinite useful life.

The service life on an intangible asset is always equal to its legal life

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation? As an asset for $125,000. As a gain for $125,000. As both an asset and a gain for $125,000. No asset or gain is reported.

No asset to gain is reported because they haven't reached a final settlement

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? $102,000. $100,800. $106,000. $80,000.

100,800 80,000+4,800+20,000-4,000=100,800

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year? $400. $320. $720. $0.

400 80*5=400

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)? (Do not round intermediate calculations.) $0. $50,000. $200,000. $100,000.

50,000 2,000,000/10yr=200,000 200,000*3/12=50,000

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? $60,000. $50,000. $57,000. $59,000.

59000 50,000+4,000+3000+2000=59000

Accumulated depreciation is: An expense account. An asset. A contra-asset. A liability.

A contra-asset

Which of the following correctly describes the nature of depreciation? Depreciation represents the valuation of property, plant, and equipment over its service life. Depreciation represents the valuation of an intangible asset over its service life. Depreciation represents the allocation of the cost of property, plant, and equipment over its service life. Depreciation represents the allocation of the cost of an intangible asset over its service life.

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

Current liabilities May include contingent liabilities. Include obligations payable within one year or one operating cycle, whichever is shorter. Can be satisfied only with the payment of cash. Are preferred by most companies over long-term liabilities.

May include contingent liabilities

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? $300,000 $450,000 $150,000 $600,000

450,000 10,000,000*6%*9/12=450,000

Which of the following intangible assets are not amortized? Goodwill. Patents. Copyrights. Franchises.

Goodwill

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n): Liability. Expense. Asset. Revenue.

Liability

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now. one; two one; one two; two one; ten

One;one

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account? $0. $2,000. $8,000. $10,000.

2,000 10,000-8,000=2,000

Which of the following increases an employer's payroll costs? FICA withholding from the employee. State income tax. Federal income tax. Employer's FICA contribution.

Employer's FICA contribution.

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? $900,000. $200,000. $180,000. $220,000.

180,000 90,000*20,000/(20,000+800,000)=180,000

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record: No gain or loss. A loss of $10,000. A gain of $10,000. A loss of $35,000.

A loss of 10,000 65,000-25,000=40,000 30,000-40,000=-10,000

The asset's cost less accumulated depreciation is called: Replacement cost. Book value. Net fair value. Residual value.

Book Value

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase? $800,000. $500,000. $700,000. $0.

700,000 1,500,000-(2,000,000-1,200,000)=70,000

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record? Debit Cash, $5,000; Credit Notes Receivable, $5,000. Debit Notes Receivable, $5,000; Credit Cash, $5,000. Debit Cash, $5,000; Credit Notes Payable, $5,000. Debit Notes Payable, $5,000; Credit Cash, $5,000.

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

Which of the following represents a characteristic of a liability? A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events. All of these are characteristics of a liability.

All of these are characteristics of a liability

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

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

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year? $100,000. $82,000. $80,000. $60,000.

60,000 Yr.1 100,000-20,000=80,000 Yr.2 80,000-20,000= 60,000

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year? $8,000. $5,000. $7,000. $5,500.

8000 Equipment cost =50,000 Salvage Value= 10,000 Useful life= 8 yr Depreciation= (50,000-10,000)/8=5,000 Acc dep. @ beg yr3 = 5,000*2=10,000 book Val @ beg yr 3 = 50,000-10,000=40,000 Revised useful life= 6 yr revised salvage value= 8,000 remaining useful life= 6-2=4 revised annual dep. (40,000-8,000)/4= 8000

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

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 loss of $5,000. A gain of $5,000. A loss of $70,000. A gain of $70,000.

A gain of $5,000 100,000-65,000=35,000 40,000-35,000= 5,000

If equipment is retired, which of the following accounts would be debited? Accumulated depreciation. Depreciation expense. Equipment. Cash.

Accumulated Expense

Which of the following expenditures should be recorded as an asset? An addition which increases future benefit. Repairs that maintain current benefits. Maintenance that maintain current benefits. Unsuccessful legal defense of an intangible asset.

An addition which increases future benefit.

The acid-test ratio is Current assets divided by current liabilities. Cash and current investments divided by current liabilities. Cash, current investments, and accounts receivable divided by current liabilities. Cash, current investments, accounts receivable, and inventory divided by current liabilities.

Cash, current investments, and accounts receivable divided by current liabilities

A long-term asset is recorded at the: Cost of the asset. Additional costs to get the asset ready for use. Cost of the asset plus all costs necessary to the asset ready for use. Cost of the asset less all costs necessary to the asset ready for use.

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

The current ratio is: Current assets divided by current liabilities. Current liabilities divided by current assets. Cash, short-term investments, and accounts receivable divided by current liabilities. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

Current assets divided by current liabilities.

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. Debit interest expense and credit cash, $4,000. Debit interest expense and credit interest payable, $12,000. Debit interest expense and credit cash, $12,000.

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

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be Disclosed but not reported as a liability. Disclosed and reported as a liability. Neither disclosed nor reported as a liability. Reported as a liability but not disclosed.

Disclosed and reported as a liability

Which of the following is paid by both the employee and the employer? FICA taxes. Federal unemployment taxes. State unemployment taxes. Personal income taxes.

FICA taxes

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life? Short service life, high residual value, and straight-line depreciation. Long service life, high residual value, and straight-line depreciation. Short service life, low residual value, and double-declining-balance depreciation. Long service life, high residual value, and double-declining-balance depreciation.

Long service life, high residual value, and straight-line depreciation.

Assuming a current ratio of 1.00 and an acid-test ratio of 0.75, how will the purchase of inventory with cash affect each ratio? Increase the current ratio and increase the acid-test ratio. No change to the current ratio and decrease the acid-test ratio. Decrease the current ratio and decrease the acid-test ratio. Increase the current ratio and decrease the acid-test ratio.

No change to the current ratio and decrease the acid test ratio

Which of the following statements regarding liabilities is not true? Liabilities can be for services rather than cash. Liabilities are reported in the balance sheet for almost every business. Liabilities result from future transactions. Liabilities represent probable future sacrifices of benefits.

Not sure lol

Which of the following expenditures should be recorded as an expense? An addition which increases future benefit. An improvement. Ordinary repairs and maintenance. Successful legal defense of an intangible asset.

Ordinary repairs and maintenance.

Which of the following is not recorded as an intangible asset in the balance sheet? Patents. Research and development. Trademarks. Goodwill.

Research and development.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as Sales tax expense. Sales tax revenue. Sales tax receivable. Sales tax payable.

Sales tax payable

Which of the following will result in higher depreciation expense in the first year of the asset's life? Short service life and high residual value. Short service life and low residual value. Long service life and low residual value. Long service life and high residual value.

Short service life and low residual value

Which of the following is true in comparing the current ratio with the acid-test ratio? Sometimes the current ratio will be larger and sometimes the acid-test ratio will be larger. The denominator in the ratios will differ. The current ratio will always be at least as large as the acid-test ratio. The acid-test ratio will always be at least as large as the current ratio.

The current ratio will always be at least as large as the acid-test ratio

The amount of the gain on the sale of equipment equals: The selling price minus the book value of the equipment. The selling price minus the original cost of the equipment. The selling price minus the fair value of the equipment. The selling price minus accumulated depreciation of the equipment.

The selling price minus the book value of the equipment.