Exam 3 Financial Accounting

An employee earned $61,700 during the year working for an employer. The FICA tax rate for Social Security is 6.2% of the first $118,500 of employee earnings per calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The current FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. What is the amount of total unemployment taxes the employee must pay?

$0 The question asks how much unemployment tax the employee must pay. The employer is the one responsible for unemployment taxes; not the employee.

Trey Morgan is an employee who is paid monthly. For the month of January of the current year, he earned a total of $4,538. The FICA tax for social security is 6.2% of the first $118,500 earned each calendar year, and the FICA tax rate for Medicare is 1.45% of all earnings for both the employee and the employer. The amount of federal income tax withheld from his earnings was $680.70. What is the total amount of taxes withheld from the Trey's earnings?

$1,027.86 Total Taxes = Federal Income Tax + FICA-SS Tax + FICA-Medicare Tax Total Taxes = $680.70 + $281.36* + $65.80** = $1,027.86 *FICA-SS Tax $4,538.00 * 0.062 = $281.36 **FICA-Medicare Tax $4,538.00 * 0.0145 = $65.80

Gary Marks is paid on a monthly basis. For the month of January of the current year, he earned a total of $9,188. FICA tax for Social Security is 6.2% on the first $118,500 of earnings each calendar year and the FICA tax for Medicare is 1.45% of all earnings. The FUTA tax rate is 0.6%, and the SUTA tax rate is 5.4%. Both unemployment taxes are applied to the first $7,000 of an employee's pay. The amount of Federal Income Tax withheld from his earnings was $1,524.57. What is the amount of the employer's payroll taxes expenses for this employee? (Round your intermediate calculations to two decimal places.)

$1,122.89 Payroll Taxes = FICA-SS Tax + FICA-Medicare Tax + FUTA Tax + SUTA Tax Payroll Taxes = $569.661 + $133.232 + $42.003 + $378.004 = $1,122.89 1FICA—Social security $9,188 × 0.062 = $569.66 2FICA—Medicare $9,188 × 0.0145 = $133.23 3FUTA $7,000 × 0.006 = $42.00 4SUTA $7,000 × 0.054 = $378.00

Digg Co. installs a manufacturing machine in its factory at the beginning of the year at a cost of $36,000. The machine's useful life is estimated at 10 years, or 300,000 units of product, with a $6,000 salvage value. During its first year, the machine produces 14,000 units of product. Determine the machine's first year depreciation expense under the units-of-production method.

$1,400

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

$1,400

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for four years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

$10,000 x (.25 x 2) = $5,000.

Ring Co. owns a delivery van that was purchased two years ago for $25,000. Ring has depreciated the van for two years at a straight-line amount of $4,000 per year. The book value of this van at the end of the second year would be $

$17,000

Ion Co. purchased land for $190,000. Ion also paid $5,000 in brokerage fees, $1,000 in legal fees, and $500 in title costs. Ion should record the cost of this land to be:

$196,500

On January 3, ATA Company purchases a copy machine for $11,500. The machine is expected to last five years and have a salvage value of $1,500. Compute depreciation expense for the first year, assuming the company uses the straight-line method.

$2,000

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of $8,938. The FICA tax for social security is 6.2% and the FICA tax rate for Medicare is 1.45%. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,483.07. What is the total amount of taxes withheld from the Portia's earnings? (Round your intermediate calculations to two decimal places.)

$2,166.83 Total Taxes = Federal Income Tax + FICA-SS Tax + FICA-Medicare Tax Total Taxes = $1,483.07 + $554.16* + $129.60**; Total Taxes = $2,166.83 *FICA-SS Tax $8,938.00 × 0.062 = $554.16 **FICA-Medicare Tax $8,938.00 × 0.0145 = $129.60

Wen Co. purchased a building for $200,000. Wen paid $20,000 in lawyer and title fees. Wen also paid an additional $15,000 to modify the building in order to accommodate his business needs. Wen should record the cost of the building at:

$235,000

PT Co. purchased land and an existing building for $200,000. In addition, PT paid closing costs of $15,000. PT removed the building and regraded the land for a total cost of $35,000. PT should record the cost of the land for:

$250,000

On January 24, Bora Co. purchased a delivery van for $22,000. Bora expects to drive the van for approximately 5 years or 100,000 miles, before disposing of it for an estimated salvage value of $2,000. During the first year, Bora drives the van for 18,000 miles. How much would depreciation expense be if Bora uses the units-of-production depreciation method?

$3,600

Daley Co. owns a mineral deposit with an estimated 600,000 tons of available ore. It was purchased for $300,000 and has no salvage value. During the current period, Daley mined and sold 40,000 tons of ore. Depletion expense for the period will be how much?

$300,000/600,000 x 40,000= $20,000

Alin Co. purchases a building for $300,000 and pays an additional $30,000 for closing costs (brokerage, title, attorney fees). Alin also pays $20,000 in renovations, including painting, carpet, lighting, etc. Alin should record the cost of the building at:

$350,000.

At the beginning of the year, Jobs Co. owned one piece of office equipment, a copier. The copier was purchased two years ago for $12,000. At the beginning of the year, the balance in accumulated depreciation was $4,000. Jobs uses straight-line depreciation of $2,000 per year with a zero salvage value. How much is accumulated depreciation at the end of the year?

$6,000

Portia Grant is an employee who is paid monthly. For the month of January of the current year, she earned a total of 8,638. The FICA tax for social security is 6.2% of the first $118,500 of employee earnings each calendar year and the FICA tax rate for Medicare is 1.45% of all earnings. The FUTA tax rate of 0.6% and the SUTA tax rate of 5.4% are applied to the first $7,000 of an employee's pay. The amount of federal income tax withheld from her earnings was $1,433.27. Her net pay for the month is: (Round your intermediate calculations to two decimal places.)

$6,543.92 Net Pay = Gross Pay − Federal Income Tax − FICA-SS Tax − FICA-Medicare Tax Net Pay = $8,638 − $1,433.27 − $535.56* − $125.25**; Net Pay = $6,543.92 *FICA-SS Tax $8,638 × 0.062 = $535.56 **FICA-Medicare Tax $8,638 × 0.0145 = $125.25

An employee earned $128,500 working for an employer in the current year. The current rate for FICA Social Security is 6.2% payable on earnings up to $118,500 maximum per year and the rate for FICA Medicare 1.45% of all earnings. The employer's total FICA payroll tax for this employee is:

$9,210.25. Employer's Total FICA Social Security = $118,500 * 0.062 = $7,347 Employer's Total FICA Medicare = $128,500 * .0145 = $1,863.25 Employer's Total FICA = $7,347 + 1,863.25 = $9,210.25

Bina Co. purchased a vehicle on January 1st for $15,000 and estimates it will use the vehicle for eight years with a $3,000 salvage value. Using the double declining-balance depreciation method, compute the vehicle's second year depreciation expense.

(100%/8 x 2)=25%. 15,000 x 25%=3,750 for first year; Second year: (15,000-3750) x 25% =2812.50 $2,812.50

Tops Co. purchases equipment for $12,000 and has been using straight-line depreciation, estimating a 5-year life and $500 salvage value. At the beginning of the third year, Tops decides to use the equipment for a total of 6-years with no salvage value. Compute the revised depreciation for the third year.

(12,000-500)/5=2,300 per year. $2,300 x 2 years = $4,600 depreciation taken. Book value at beginning of year 3 = $12,000-4,600= $7,400/4 = $1,850.

On June 1, Harding Co. purchased a machine for $14,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year (partial) depreciation expense for June 1st through December 31st.

(14,000-2000)/5 x 7/12=1,400 for a partial year depreciation. $1,400

Seven Co. owns a coal mine with an estimated 1,000,000 tons of available coal. It was purchased for $300,000 and has $50,000 salvage value. During the current period, Seven mined and sold 200,000 tons of coal. Depletion expense for the period will be how much?

(300,000 - 50,000)/1,000,000 x 200,000 = $50,000.

Rino Co. pays $35,000 for equipment. The machine's useful life is estimated at 10 years, or 50,000 units of product with a $5,000 salvage value. During the first year, the machine produced 12,000 units of product. How much depreciation expense will Rino record this first year based on the units-of-production depreciation method?

(35,000-5,000)/50,000 x 12,000 $7,200

Sales using bank credit card

(Report credit card expense as selling expense.) Debit cash, debit credit card expense, and credit sales.

Straight-line depreciation can be calculated by taking:

(cost minus salvage value)/useful life

On November 1, Wright Co. borrowed $20,000 cash from Third Bank by signing a 90-day, 6% interest-bearing note. On December 31, Wright recorded an adjusting entry to interest expense of $200. On January 30, the due date of the note, Wright will record the payment with a debit to Interest Expense in the amount of $_________.

100

Nimo Co. purchased a machine for $12,000 and estimates it will use the machine for five-years with a $2,000 salvage value. Using the double declining-balance depreciation method, compute the machine's first year depreciation expense.

12,000 x [(100%/5) x 2] =4,800. Salvage value is not subtracted upfront with this method.

On January 1, Enco Co. purchases a milling machine for $15,000. The machine is expected to last seven years and have a salvage value of $1,000. Assuming the company uses the straight-line method, depreciation expense should be $BLANK per year

2000

Arc Co. purchased a piece of equipment for $25,000. At the end of the year, the book value of the equipment is $12,000. The salvage value is 0. How much is accumulated depreciation at the end of the period?

25,000-12,000 = 13,000

A company acquires a patent for $20,000 to manufacture and sell an item. The company intends to hold the patent for 5 years. Amortization for the first year will be recorded with a debit to Amortization Expense for $

4000

Geo Co. purchased a building for $400,000. In addition, Geo paid $35,000 closing fees (including title and lawyer fees). Geo also paid $60,000 to modify the building, changing the layout specifically for Geo's needs. Geo should record the building at $

495000

A company's had fixed interest expense of $3,000, its income before interest expense and income taxes is $16,000, and its net income is $6,400. The company's times interest earned ratio equals:

5.33 Times Interest Earned Ratio = Income before Interest Expense and Income Taxes / Interest Expense Times Interest Earned Ratio = $16,000 / $3,000 = 5.33

On January 2, Dice Co. purchases a mixing machine for $25,500. The machine is expected to last four years and have a salvage value of $5,500. Assuming the company uses the straight-line method, depreciation expense should be $ per year.

5000

A short-term note payable. a. Is a written promise to pay a specified amount on a specified future date within one year or the operating cycle, whichever is longer. b. Is a contingent liability. c. An estimated liability. d. Is not negotiable. e. Cannot be used to extend the payment period for an account payable.

A

The current portion of long-term debt should be a) Reported as a current liability on the balance sheet. b) Reported as a long-term liability on the balance sheet. c) Combined with the rest of the long-term debt on the balance sheet. d) Paid immediately.

A

Which of the following is not true about deferred revenue? a) Deferred revenue will be recognized when payment is received from the customer b) Deferred revenue is a liability. c) Deferred revenue may be recognized on both cash and credit sales d) Customer prepayments typically require recognition of deferred revenue

A

The times interest earned ratio reflects: Multiple Choice A company's ability to pay its operating expenses on time. A company's ability to pay interest even if sales decline. A company's profitability. The relation between income and debt. The relation between assets and liabilities.

A company's ability to pay interest even if sales decline.

A promissory note received from a customer in exchange for an account receivable is recorded by the payee as: a. cash equivalent b. an account receivable c. note receivable d. short-term investment e. note payable

A note receivable

Bad Debts (Uncollectible Accounts)

Accounts of customers who do not pay what they have promised to pay; an expense of selling on credit. Companies believe that granting credit will increase total sales enough to offset bad debts.

Factoring (selling) receivables

Accounts receivables are sold to a bank and the seller is charged a factoring fee.

Ella Co. owns a mineral deposit and recognizes $15,000 of depletion expense during the period. This entry will be recorded with a credit to:

Accumulated Depletion - Mineral Deposit

Ironworks Co. sells a machine that cost $5,000 with a current book value of $1,500 for $2,000 cash. Ironworks will record a debit to which account and for how much?

Accumulated Depreciation - Equipment for $3,500

Which depreciation method will compute the most depreciation expense over the life of the asset?

All methods will produce equal depreciation expense over the life of the asset.

Percent of accounts receivable

Also called a balance sheet method. Assumes percent of company's receivables is uncollectible. Percent is based on experience and economic trends.

realizable value

Amount expected to be received

Accounts Receivable

Amounts due from customers for credit sales

installment accounts receivable

Amounts owed by customers from credit sales for which payment is required in periodic amounts over an extended time period. The customer is usually charged interest. Most installement receivables require interest payments and they can be either current or noncurrent assets depending on the time of repayment.

aging of accounts receivable method

Applies several percentages to accounts receivable to estimate bad debt. A method of estimating bad debts expense involving a detailed examination of outstanding accounts and the length of time past due. (Also called the balance sheet approach) is applied like the percent of receivables method except several percentages are used (versus one) to estimate allowance. Each receivable is classified by how long it's past its due date. Estimates of uncollectible amounts are made assuming that the longer an amount is past due, the more likely it is uncollectible. After amounts are classified (or aged) experience is used to estimate percent of each uncollectible class. Percents are multiplied by amounts in each class to get estimated balance of Allowance for Doubtful Accounts.

Amounts received in advance from customers for future products or services: Multiple Choice Are revenues. Increase income. Are liabilities. Are not allowed under GAAP. Require an outlay of cash in the future.

Are liabilities.

Percent of Sales Method/Income Statement Approach

Assumes percent of credit sales for the period is uncollectible. Uses a percent of credit sales for the period to estimate bad debts.

An estimated liability: a. Is an unknown liability of a certain amount. b. Is a known obligation of an uncertain amount. c. Is a liability that may occur if a future event occurs. d. Can be the result of a lawsuit. e. Is not recorded until the amount is known for certain.

B

If management can estimate the amount of loss that will occur due to litigation against the company, and the likelihood of the loss is probable, a contingent liability should be a) Disclosed, but not reported as a liability. b) Disclosed and reported as a liability. c) Neither disclosed nor reported as a liability. d) Reported as a liability, but not disclosed.

B

Liabilities: a. Must be certain. b. Must sometimes be estimated. c. Must be for a specific amount. d. Must always have a definite date for payment. e. Must involve an outflow of cash.

B

Obligations due to be paid within one year or the company's operating cycle, whichever is longer, are: a. Current Assets b. Current Liability c. Earned Revenue d. Operating Cycle Liabilities e. Bills

B

Which of the following is not a typical current liability? a) Sales Taxes Payable b) Mortgage Payable c) Unearned Revenue d) Interest Payable

B

A method of estimating bad debts expense that involves a detailed examination of outstanding accounts and the length of time past due is the: a. direct write off method b. aging of accounts receivable method c. Percentage of sales method d. Aging of investments method e. Percent of accounts receivable method

B. Aging of accounts receivable method

Accumulated depreciation is recorded on which of the following financial statements?

Balance sheet

Accumulated depreciation is reported on which of the following financial statements?

Balance sheet

BLANK are expenditures that keep an asset in normal, good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Betterments

BLANK are expenditures that make a plant asset more efficient or productive, but do not always increase an asset's useful life.

Betterments

pledging of receivables

Borrowing money by pledging receivables as security for a loan. Borrower discloses pledging in notes to financial statement.

A company sold $12,000 worth of trampolines with an extended warranty. It estimates that 2% of these sales will result in warranty work. The company should: a. Consider the warranty expense a remote liability since the rate is only 2%. b. Recognize warranty expense at the time the warranty work is performed. c. Recognize warranty expense and liability at the time of sale. d. Consider the warranty expense a contingent liability. e. Recognize warranty liability when the company purchases the trampolines.

C

An employee earned $47,000 during the year working for an employer. The FICA tax for social security is 6.2% and the FICA tax for Medicare is 1.45%. The employee's share of FICA taxes is: a. $681.50 b. $2,914.00 c. $3,595.50 d. $7,191.00 e. Zero, since the employees's pay exceeds the FICA limit.

C

Solvency ratios measure a company's ability to: a) Pay for current liabilities b) Pay for long-term liabilities c) Pay for all liabilities d) Pay for interest on long-term debt

C

The quality of receivables refers to: a. creditworthiness of sellers b. method of collection c. The likelihood of collection without loss d. Sales turnover e. Interest rate

C. The likelihood of collection without loss

The expense recognition principle, as applied to bad debts, requires: a. expenses be ignored if their effect on the financial statements is unimportant to user's business decisions b. Use of the direct write-off method for bad debts c. The use of the allowance method of accounting for bad debts d. That bad debts be disclosed in the financial statements e. That bad debts not be written off

C. The use of the allowance method of accounting for bad debts

Short-term notes payable: Multiple Choice Cannot replace an account payable. Can be issued in return for money borrowed from a bank. Are not negotiable. Are a conditional promise to pay. Rarely involve interest charges.

Can be issued in return for money borrowed from a bank.

Determine which of the following expenses are considered revenue expenditures related to a company vehicle. Engine overhaul Installation of special equipment Car wash Oil change Dent repair

Car wash Oil change Dent repair

Which of the following asset(s) are not considered intangible assets? Trademark Copy machine Copyright Goodwill Mineral deposit

Copy machine Mineral deposit

Which of the following factors determine depreciation? Current market value of asset Cost of asset Salvage value Book value Appraisal of asset Useful life

Cost of asset Salvage value Useful life

A patent was purchased for $20,000 and expected to be used for the 20-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?

Credit to Accumulated Amortization $1,000. Debit to Amortization Expense $1,000.

A patent was purchased for $15,000 and expected to be used for the 10-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?

Credit to Accumulated Amortization $1,500. Debit to Amortization Expense $1,500.

Zion Co. paid cash for an upgrade to an existing machine that would reduce the amount of waste produced by the machine (and therefore, increasing efficiency). The journal entry to record this upgrade would include which of the following entries?

Credit to Cash Debit to Machinery

A company sells a machine that cost $7,000 for $500 cash. The machine had $6,500 accumulated depreciation. The entry to record this transaction will include which of the following entries?

Credit to Machinery for $7,000. Debit to Cash for $500. Debit to Accumulated Depreciation - Machinery for $6,500.

A company's employees had the following earnings records at the close of the current payroll period: Employees Earnings Through Earnings this Prior Pay Period Pay Period D. Adams $11,300 $3,900 J. Hess 6,100 2,500 R. Lui 9,500 3,100 T. Morales 4,800 1,400 L. Vang 10,000 3,000 The company's payroll taxes expense on each employee's earnings includes: FICA Social Security taxes of 6.2% on the first $76,200 plus 1.45% FICA Medicare on all wages; 0.8% federal unemployment taxes on the first $7,000; and 2.5% state unemployment taxes on the first $7,000. Compute the employer's total payroll taxes expense for the current pay period.

Current earnings subject to: Employees FICA SUTA & FUTA D. Adams $3,900 J. Hess 2,500 $900 R. Lui 3,100 T. Morales 1,400 1,400 L. Vang 3,000 Total $13,900 $2,300 Calculation of Taxes Due FICA - Social Security $13,900 x .062 = $861.80 FICA - Medicare $13,900 x .0145 = 201.55 FUTA $2,300 x .008 = 18.40 SUTA $2,300 x .025 = 57.50 Total Employer Payroll Taxes $1,139.25

Operating leases allow: a) Lease payments to be capitalized as long-term assets b) The lessor to use property for a specific time period c) Transfer ownership from the lessor to the lessee d) The lessee to use property for a specific time period

D

Sales taxes collected by a company on behalf of the state and local governments are recorded by: a) A debit to an expense account. b) A credit to a revenue account. c) A debit to a revenue account. d) A credit to a liability account.

D

When a product or service is delivered for which a customer payment in advance has been previously received, the appropriate journal entry includes: a) A debit to a revenue and a credit to a liability account. b) A debit to a revenue and a credit to an asset account. c) A debit to an asset and a credit to a revenue account. d) A debit to a liability and a credit to a revenue account.

D

Which of the following may create employer liabilities in connection with their payrolls? a) Employee withholding taxes. b) Employee voluntary deductions. c) Employee fringe benefits. d) All of these answer choices are correct.

D

Cantrell Company is required by law to collect and remit sales taxes to the state. If Cantrell has $3,500 of cash sales that are subject to an 10% sales tax, what is the journal entry to record the cash sales?

Debit Cash $3,850; credit Sales $3,500; credit Sales Taxes Payable $350. Sales Taxes Payable = Sales × Sales Tax Rate Sales Taxes Payable = $3,500 × 0.10 = $350 (Credit to Sales Taxes Payable) Cash Received = Sales + Sales Taxes Payable Cash Received = $3,500 + $350 = $3,850 (Debit to Cash)

On May 22, Jarrett Company borrows $7,500 from Fairmont Financing, signing a 90-day, 8%, $7,500 note. What is the journal entry needed to record the payment of the note by Jarrett Company on the maturity date?

Debit Notes Payable $7,500; debit Interest Expense $150; credit Cash $7,650. Interest Expense = Principal * Interest Rate * Time Interest Expense = $7,500 * 0.08 * 90/360 = $150 (Debit to Interest Expense) Cash Proceeds = Notes Payable + Interest Expense Cash Proceeds = $7,500 + $150 = $7,650 (Credit to Cash)

During August, Boxer Company sells $360,000 in merchandise that has a one year warranty. Experience shows that warranty expenses average about 4% of the selling price. The warranty liability account has a credit balance of $12,400 before adjustment. Customers returned merchandise for warranty repairs during the month that used $9,000 in parts for repairs. The entry to record the estimated warranty expense for the month is:

Debit Warranty Expense $14,400; credit Estimated Warranty Liability $14,400. Warranty Expense = $360,000 × 0.04 = $14,400

Bad debt is later recovered under allowance method

Debit accounts receivable, credit allowance for doubtful accounts. Debit cash, debit accounts receivable.

Bad debt later recovered under direct method...

Debit accounts receivable, credit bad debts expense. Debit cash, credit accounts receivable.

Store credit card interest revenue

Debit accounts receivable, credit interest revenue

Note is dishonored; receivable and interest recorded

Debit accounts receivable, credit interest revenue, credit notes receivable

Credit sale and a collection of cash from a prior credit sale...

Debit accounts receivable, credit sales (record credit sales) Debit cash, credit accounts receivable (record collection of credit sales).

Credit sales and later collection

Debit accounts receivable, credit sales. Debit cash, credit accounts receivable.

Large retailers sell on credit. Retailers have their own credit cards to grant credit to customers and earn interest on balances past due.

Debit accounts receivable, credit sales. Debit accounts receivable, credit interest revenue.

Decrease allowance

Debit allowance for doubtful accounts, credit accounts receivable.

Writing off a bad debt under allowance method...

Debit allowance for doubtful accounts, credit accounts receivable.

Writing off a bad debt under direct method...

Debit bad debts expense, credit accounts receivable

Estimating bad debts...

Debit bad debts expense, credit allowance for doubtful accounts.

Increase allowance

Debit bad debts expense, credit allowance for doubtful accounts.

Percent of credit sales for period is uncollectible. Retailer expects bad expense from its sales

Debit bad debts expense, credit allowance for doubtful accounts.

Note is honored; when note term runs over two periods, record cash receipt.

Debit cash, credit interest revenue, credit interest receivable, and credit notes receivable.

Note is honored, cash is received in full (with interest)

Debit cash, credit interest revenue, credit notes receivable

If company borrows money and pledges its receivables as security

Debit cash, credit notes payable

Sale of receivables for cash with a charged factor fee...

Debit cash, debit factoring fee expense, credit accounts receivable

Note receivable and cash in exchange for accounts receivable

Debit cash, debit notes receivable, and credit accounts receivable.

Accrue interest on notes receivable (recording end of period interest adjustment)

Debit interest receivable, credit interest revenue

Note receivable from sales

Debit notes receivables, credit sales.

Athena Company provides employee health insurance that costs $15,100 per month. In addition, the company contributes an amount equal to 4% of the employees' $151,000 gross salary to a retirement program. The entry to record the accrued benefits for the month would include a:

Debit to Employee Benefits Expense $21,140. Accrued Expenses = $151,000 × 0.04 = $6,040 + $15,100 = $21,140

Rojo's Roses Co. received an invoice for replacement of the engine on its main delivery van. The replacement will extend the life of the van an additional three years. The entry to record receipt of the invoice would include which of the following entries?

Debit to Equipment. Credit to Accounts Payable.

BLANK is the process of allocating the cost of a natural resource to the period when it is consumed.

Depletion

The process of allocating the cost of a natural resource to a period when it is consumed requires a debit entry to the BLANK BLANK account.

Depletion Expense

BLANK is the process of allocating the cost of a plant asset to expense in the accounting periods benefiting from its use.

Depreciation

Which of the following items related to depreciating equipment would be found on a company's income statement?

Depreciation Expense - Equipment

A company signed a $30,000 (face value) noninterest-bearing 60-day, 12% note payable at the bank. The company should prepare a journal entry that includes a: a. Credit to Notes Payable for $30,600 b. Credit to Notes Payable for $29.400. c. Debit to Cash for $30,600. d. Debit to Cash for $30,000. e. Debit to Cash for $29,400

E

Contingent liabilities can be: a. Probable. b. Remote. c. Reasonably Possible. d. Estimable. e. All of the above.

E

Employers: a. Pay FICA taxes in equal amount to the FICA taxes withheld from the employees. b. Withhold employees' FICA taxes. c. Pay FICA taxes equal to the employee rate. d. Pay unemployment taxes to both the state and federal governments. e. All of the above.

E

Known liabilities: a. Include accounts payable, notes payable, and payroll. b. Are obligations set by agreements, contracts, or laws. c. Measurable. d. Definitely determinable. e. All of the above.

E

Diamond Co. paid cash to overhaul a forklift, which extended the life of the forklift for an additional four years. The entry to record this purchase would include a debit to the BLANK account.

Equipment

Quick Catering Co. paid for a refrigeration system to be added to their delivery van to keep the food cooled during deliveries. To record this expense, Quick would debit the BLANK account.

Equipment

ATZ Co. sells equipment that cost $9,000 with current accumulated depreciation of $8,000 for $2,000 cash. To record this transaction, ATZ will credit which accounts?

Equipment Gain on Sale of Equipment

Which of the following items are plant assets?

Equipment being used in operations Building being used for operations

a.Estimated Liability b. Contingent Liability c. Current Liability that is neither a nor b. ____ Lawsuit against the company. ____ Warranty on products sold this year. ____ Accounts payable. ____ Income taxes payable. ____ Vacation benefits. ____ Accrued wages payable. ____ Debt guarantees. ____ Property taxes payable ____ Payroll taxes payable. ____ Unearned revenues.

Estimated Liability Contingent Liability Current Liability that is neither a nor b. __(b)__ Lawsuit against the company. __(a)__ Warranty on products sold this year. __(c)__ Accounts payable. __(a)__ Income taxes payable. __(a)__ Vacation benefits. __(c)__ Accrued wages payable. __(b)__ Debt guarantees. __(a)__ Property taxes payable __(c)__ Payroll taxes payable. __(c)__ Unearned revenues.

Federal government taxes implemented on employers in order to provide unemployment benefits to qualified workers are known as (use acronym)

FUTA

True or false: The cost of plant assets should include all of the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use, including repairs to damages incurred after installation

False

Allowance method

For bad debts matches estimated loss from uncollectible accounts receivable against the sales they produce. Use estimated loss because when sales occur, sellers don't know which customers won't pay. The allowance method requires estimate of total bad debts expected from that period's sales. Two advantages over direct write-off: 1. it records estimated bad debts expense in the period when related sales are recorded and 2. reports accounts receivable on balance sheet at estimated amount to be collected.

Sangmoon Co. sells equipment for $1,000 cash. The equipment cost Sangmoon $6,500 and is fully depreciated at the time of sale and has no salvage value. Sangmoon will record the sale with a credit to which account and for how much?

Gain on Sale of Equipment for $1,000.

BLANK is measured as the excess of the cost of an acquired entity over the value of the acquired net assets.

Goodwill

BLANK is the amount by which a company's value exceeds the value of its individual assets and liabilities. It is recorded as an intangible asset, but is not amortized.

Goodwill

Which of the following intangible assets is not amortized using straight-line amortization?

Goodwill

Depreciation Expense is reported on which of the following financial statements?

Income statement

Depreciation expense is reported as a decrease in which of the following financial statements?

Income statement

BLANK are nonphysical assets (used in operations) that confer on their owners long-term rights, or competitive advantages.

Intangible assets

A short-term note payable: Multiple Choice Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer. Is a contingent liability. Is an estimated liability. Is not a liability until the due date. Cannot be used to extend the payment period for an account payable.

Is a written promise to pay a specified amount on a definite future date within one year or the company's operating cycle, whichever is longer.

Recording employee payroll deductions may involve: Multiple Choice Liabilities to the employer. Liabilities to federal and state governments. Expenses for state unemployment. Expenses for the gross wages and salaries. Expenses for the employer portion of any medical insurance.

Liabilities to federal and state governments.

On December 31, Briar Co. disposed of a piece of equipment that cost $6,000 with accumulated depreciation of $4,500. The entry to record this disposal would include a debit to which account and for how much?

Loss on Disposal of Equipment for $1,500

Forward Co. discarded a machine that cost $5,000 and was fully depreciated. The entry to record this transaction would include a credit to the BLANK account.

Machinery

Accounts Receivable Turnover

Measures how often, on average, receivables are collected during period. Shows how well management is doing in granting credit to customers. High turnover suggests management should consider using strict less credit terms to increase sales. A low turnover suggests management should consider more strict credit terms and aggressive collection efforts to avoid having assets tied up in accounts receivable.

To calculate depletion expense, first determine the depletion per unit. Depletion per unit can be calculated by taking (cost BLANK)/total units of capacity.

Minus salvage value

BLANK are assets that are physically consumed when used, such as mineral deposits and oil and gas fields.

Natural resources

On December 1, 2002 Expo Company borrowed $45,000 cash from First National Bank. The terms of the note were 90 days at 9%. Prepare the journal entry for Expo to record the notes issuance. Prepare the journal entry for Expo to record the accrued interest due as of December 31, 2002. Prepare the journal entry for Expo to record the payment of the note on March 1, 2003.

On December 1, 2002 Expo Company borrowed $45,000 cash from First National Bank. The terms of the note were 90 days at 9%. a. Prepare the journal entry for Expo to record the notes issuance. Cash 45,000 Notes Payable 45,000 b. Prepare the journal entry for Expo to record the accrued interest due as of December 31, 2002. Interest Expense ($45,000 x .09 x 30/360) = 337.50 Interest Payable 337.50 c. Prepare the journal entry for Expo to record the payment of the note on March 1, 2003. Note Payable 45,000.00 Interest Payable 337.50 Interest Expense ($45,000 x .09 x 60/360) = 675.00 Cash 46,012.50

BLANK are expenditures that keep an asset in normal, good operating condition. They are necessary if an asset is to perform to expectations over its useful life.

Ordinary repairs

Which of the following assets are amortized?

Patent Copyright

Which of the following items are considered employee benefits? (Check all that apply.)

Pension plans Medical insurance

Bad debts estimation, income statement focus

Percent of sales -> sales x rate = bad debts expense; adjusted entry amount = percent of sales

BLANK assets are assets used in a company's operations that have a useful life of more than one accounting period.

Plant or Fixed

Contingent liabilities are recorded or disclosed unless they are: Multiple Choice Probable and estimable. Remote. Reasonably possible. Probable and not estimable. Possible and estimable.

Remote.

Which of the following expenses would not be considered an ordinary repair?

Replacing an engine

The deferred income tax liability: Multiple Choice Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government. Is a contingent liability. Can result in a deferred income tax asset. Is never recorded. Is recorded whether or not the difference between taxable income and financial accounting income is permanent or temporary.

Results from the income tax expense reported on the income statement differing from the amount of income taxes payable to the government

(Revenue/Capital) expenditures are additional costs of plant assets that do not materially increase the asset's life or productive capabilities.

Revenue

Zion Co. sells $100 of merchandise and collects $10 sales tax. The sales tax is recorded to which account?

Sales tax payable

BLANK value, also called residual value or scrap value, is an estimate of the asset's value at the end of its benefit period.

Salvage

The cost at which a company records purchases of machinery and equipment should include which of the following?

Shipping fees Installation Taxes Purchase price

In order to be reported, liabilities must: Multiple Choice Be certain. Sometimes be estimated. Be for a specific amount. Always have a definite date for payment. Involve an outflow of cash.

Sometimes be estimated.

Plant assets should be recorded at cost, including all normal and reasonable expenditures necessary to get the asset in place and ready for its intended use. This would include which of the following costs?

Testing Assembling Shipping charges

Quality of receivables refers to:

The likelihood of collection without loss.

Maker of the note

The person or business that signs a note and thus promises to make payment.

The expense recognition principle, as applied to bad debts, requires:

The use of the allowance method of accounting for bad debts.

Martinez Co. sells a machine that cost $10,000 with accumulated depreciation of $8,000 for $2,000 cash. The entry to record this transaction will recognize a gain or loss of how much?

There is no gain or loss.

On October 30, Cleo Co. purchased a machine for $26,000 and estimates it will use the machine for four-years with a $2,000 salvage value. Using the straight-line depreciation method, compute the machine's first year partial depreciation expense for October 30 through December 31.

This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12= $1,000.

Sellers allow customers to use bank (or third party) credit cards for all of the following reasons except: 1. To be able to charge more due to fees and interest. 2. To avoid risk of customers not paying. 3. To speed up receipt of cash from credit sale. 4. To increase total sales. 5. To avoid having to decide who gets credit and how much.

To be able to charge more due to fees and interest

True or false: The book value of an asset when using straight-line depreciation is always greater than the book value from using double-declining-balance, except at the beginning and end of the asset's useful life, when it is the same.

True

Which of the following liabilities could be a multi-period known liability?

Unearned Subscription Revenue - Notes Payable

Estimated liabilities commonly arise from all of the following except: Multiple Choice Warranties. Vacation benefits. Income taxes. Employee benefits. Unearned revenues.

Unearned revenues.

Which of the following items would be considered a current liability? {Check all that apply.)

Wages payable Accounts payable, term n/30 Notes payable, due in 3 months

Factor

a finance company or bank that purchases and takes ownership of another company's accounts receivables.

When an asset is sold for an amount that is above the asset's current book value, the company should record?

a gain on sale of equipment.

Promissory note

a written promise to pay a specified amount of money on demand or at a definite time, usually with interest. Used in transactions such as: paying for products and services and lending and borrowing money. Sellers prefer notes when credit period is long and when receivable is for a large amount.

A company sells its product subject to a warranty that covers the cost of parts for repairs during the six months after the date of sale. Warranty costs are estimated to be 6% of sales. During the month of June, the company performed warranty work and used $12,000 worth of parts to do the warranty work. Sales for June amounted to $450,000. Record the warranty expense for the month of June. Record the costs of the warranty work completed in June. If the Estimated Warranty Liability account had a credit balance of $10,000 on May 31, what is the account balance at June 30?

a. Record the warranty expense for the month of June. Warranty Expense ($450,000 x .06) = 27,000 Estimated warranty Liability 27,000 b. Record the costs of the warranty work completed in June. Estimated Warranty Liability 12,000 Parts Inventory 12,000 c. If the Estimated Warranty Liability account had a credit balance of $10,000 on May 31, what is the account balance at June 30? $10,000 + $27,000 - $12,000 + $25,000

Book value can be calculated by taking an asset's acquisition costs less its BLANK BLANK

accumulated depreciation

Copyrights, trademarks, and other intangible assets are expensed over their useful lives through the process of:

amortization

If an intangible asset has a limited life, its cost is systematically allocated to expense over its useful life through the process of:

amortization

The total asset turnover ratio is computed by taking net sales divided by:

average total assets

Honoring a note receivable indicates that the maker has: a. signed b. paid in full c. guaranteed d. notarized e. cosigned

b. paid in full

A promissory note is: a. short-term investment for the maker b. written promise to pay a specified amount of money at a certain time. c. liability to the payee d. is another name for an installment receivable e. cannot be used in payment of an account receivable

b. written promise to pay a specified amount of money at a certain time

Niren Co. made modifications to a manufacturing machine that increased its productivity by 40%. Niren would classify this expense as a(n):

betterment.

The asset's acquisition costs less its accumulated depreciation is called:

book value

When a company revises an estimate used to record depreciation expense, the company should revise depreciation by using the formula (BLANK - revised salvage value)/revised remaining useful life.

book value

A finance company or bank that purchases and takes ownership of another company's accounts receivable is called a: a. payer b. pledger c. factor d. payee e. pledgee

c. factor

Accumulated depreciation is a BLANK asset account (one that is linked with the plant asset account, but has an opposite normal balance) and is reported on the balance sheet.

contra

Allowance for Doubtful Accounts

contra-asset account containing the estimated uncollectible accounts receivable. Advantages: receivables fairly stated, bad debts expense matched with sales, writing off bad debts doesn't affect income or net receivables. Disadvantages: estimates needed.

The exclusive right to publish or sell a musical, literary, or artistic work during the life of the creator plus 70 years is called a BLANK

copyright

Consistent with the BLANK principle, plant assets should be recorded at cost, which includes all the normal and reasonable expenditures necessary to get the asset in place and ready for its intended use.

cost

The factors necessary to compute depreciation include (cost/selling price/market value) salvage value and useful life.

cost

Obligations that are due within one year or the company's operating cycle, whichever is longer, are _____.

current liabilities

Privo Co. purchases a machine that cost $15,000. Privo estimates a 5-year life with no salvage value. The first three years of depreciation expense are $6,000; $3,600; and $2,160, respectively. Based on this information, Privo is using the BLANK depreciation method.

declining-balance

The depreciation method that determines the depreciation charge for the period by multiplying a depreciation rate (often twice the straight-line rate) by the asset's beginning-period book value is known as the BLANK method.

declining-balance

An oil company recognizes the cost of discovering and operating oil wells by recording BLANK expense for each unit of oil used.

depletion

A company owns an asset that is fully depreciated. The asset is no longer being used in operations and has no market value. The company has decided to BLANK the asset by recording an entry to remove it from the balance sheet.

discard

A plant asset is (depreciated/discarded/obsolete) when it is no longer useful to the company, and it has no market value.

discarded

FICA and unemployment taxes are examples of (employee/employer) taxes.

employer

The amount by which a company's value exceeds the value of its individual assets and liabilities is called

goodwill

When recording a liability, a company may not know: (Check all that apply.)

how much to pay when to pay where to pay

Intangible assets, such as goodwill, continue indefinitely into the future and are not amortized. The values of these assets are tested annually for BLANK

impairment

Land BLANK are assets that increase the benefits of land, have a limited useful life, and are depreciated—such as walkways and fences.

improvements

A contingent liability _____. is only remotely possible cannot be estimated will result from a future event is a potential liability that has arisen because of a past event or transaction will only result when a remote event becomes probable is remotely estimable and probable

is a potential liability that has arisen because of a past event or transaction

Assets that increase the benefits of land, have a limited useful life, and are depreciated—such as parking lots and street lights—are called:

land improvements.

When a company has a current obligation to make a future payment to their supplier due to a shipment of supplies that were received last week, the company would record this transaction with an increase to an asset account and a(n) _________ account.

liability

Advantages of leasing versus buying an asset include all of the following:

little or no up-front payment lease terms often allow exchanges to trade up on leased assets

The purchase of multiple plant assets for one purchase price is called a BLANK purchase.

lump-sum

When a liability is first recorded, it is _____.

measured in terms of the probable future payment of assets or services that a company is presently obligated to make as a result of past transactions or events.

Brice Co. purchases land in order to drill oil. This oil field would be classified as a(n) BLANK on the balance sheet.

natural resource

Accounts Receivable Turnover equation

net credit sales/average net accounts receivable Denominator = (beginning balance + ending balance)/2

Bilos Co. purchased a patent on a newly developed technology. They will recognize the cost of this patent:

over the asset's life using amortization expense

A BLANK is an exclusive right granted to its owner to manufacture and sell an item or use a process for 20 years.

patent

Bad debts estimation, balance sheet focus

percent of receivables -> accounts receivable x rate = allowance for doubtful accounts aging of receivables -> accounts receivable (by age) x rates (by age) = allowance for doubtful accounts Adjusting entry amount: percent (or aging) of receivables - unadjusted balance credit or + unadjusted balance debit

(Plant/Current) assets purchased as a group in a single transaction for a lump-sum price (also called a lump-sum, group, bulk, or basket purchase) are allocated the purchase price based on their relative market values.

plant

Interest formula

principal of note x annual interest rate x time expressed in fraction of year = interest

To be recorded as a liability on the balance sheet, a contingent liability must be _____. probable reasonably possible and subject to estimate remote and subject to estimate probable and subject to estimate remotely estimable and probable reasonably estimable and possible

probable and subject to estimate

Direct write off method

records the loss from an uncollectible account receivable when it is determined to be uncollectible. No attempt is made to predict bad debts expense. Advantages: simple, no estimates needed. Disadvantages: receivables and income temporarily overstated. Bad debts expense often not matched with sales.

A contingent liability that is reasonably possible _____. can be recorded as a balance sheet item or disclosed in a note to the financial statements at the discretion of management can be disclosed in a note to the financial statements at the discretion of the management must be reported as a liability on the balance sheet requires disclosure in the notes to financial statements if it is remote and estimable requires disclosure in the notes to financial statements if it can be reasonably estimated

requires disclosure in the notes to financial statements if it can be reasonably estimated

Straight-line depreciation is calculated by taking cost minus (salvage/market) value divided by useful life.

salvage

maturity date of a note

the day the note (principal and interest) must be repaid.

Principal of a note

the original amount of a note

Payee of the note

the person or business to whom the amount of a note is payable

Interest

the price paid for the use of borrowed money

Period of the note

the time from the note's (contract) date to its maturity date.

A symbol, name, phrase or jingle identified with a company, product or service is called a

trademark

Wyatt Co. purchased a popular symbol that doubled its sales in the first year. The cost of this symbol is an asset called a:

trademark

To calculate depletion expense in a period, a company should multiply the depletion per unit by:

units extracted and sold in the period

Grand Co. owns one copier that was purchased for $10,000 three years ago. The depreciation expense taken on the copier each year has been $2,700; $1,800; and $2,200, based on the number of copies that have been made on the copier. Based on this information, the company uses the BLANK depreciation method.

units-of-production

The BLANK life (also called service life) is the length of time the asset is productively used in a company's operations.

useful

The BLANk life of a plant asset is the length of time it is productively used in a company's operations

useful