Accounting Test Ch 8 and Ch 9

On January 1, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000. Using the straight-line method, the amount of depreciation that should be recorded during year 1, is approximately

$10,000 Annual depreciation = (Cost of $33,000 − Salvage value of $3,000) ÷ Useful life of 3 years = $10,000.

Worthington, Inc., paid $90,000 to acquire land, land improvements, and a building. The company obtained two appraisals: The land was appraised at $30,000, the land improvements were appraised at $10,000, and the building was appraised at $60,000. The allocation of the cost of the purchase result in cost figures of

$27,000 for the land, $9,000 for the land improvements, and $54,000 for the building Knowledge Check 01 The apportionment of the lump-sum cost should be performed as follows: Land: $90,000 × ($30,000 / ($30,000 + $10,000 + $60,000)) = $27,000 Land improvements: $90,000 × ($10,000 / ($30,000 + $10,000 + $60,000)) = $9,000 Building: $90,000 × ($60,000 / ($30,000 + $10,000 + $60,000)) = $54,000

On January 1, 2019, Coopers Industries bought a parcel of land for use in its operations by paying the seller $100,000 in cash and signing a 5-year, 12 percent note payable in the amount of $400,000. In connection with the purchase of the land, Coopers incurred legal fees of $19,000, a real estate agent sales commission of $25,000, surveying fees of $1,000, and an appraisal fee of $5,000. The acquisition cost of the land is

$550,000 Knowledge Check 01 Total acquisition cost = Purchase price of $500,000 (comprised of cash of $100,000 and note payable of $400,000) + Legal fees of $19,000 + Commission of $25,000 + Surveying fees of $1,000 + Appraisal fee of $5,000 = $550,000.

Zimmerman Auto sells new and used cars. Its assets are as follows: (1) the showroom building, a separate building used to service customer cars, and various parking lots, (2) a nearby acre of land not currently used by the auto dealership, (3) new and used cars and trucks for sale to customers, and (4) a car that is used to provide rides to customers who prefer to wait at home while their cars are serviced. The assets that are classified as plant assets on the company's balance sheet include:

1 & 4

An intangible asset is recorded at the cost incurred to purchase it. The cost of an intangible asset with a definite useful life is allocated to expense using the straight-line method and is called amortization. Intangible assets with an indefinite useful life are not amortized— they are annually tested for impairment. Intangible assets include patents, copyrights, leaseholds, goodwill, and trademarks. Select the appropriate term for its respective definition. Exclusive right granted to its owner to manufacture and sell an item. Gives its owner the exclusive right to publish and sell musical, literary, or artistic work over a defined period of time. The amount by which a company's value exceeds the value of its individual assets and liabilities.

1) Exclusive right: Patent 2) Gives its owner exclusive right to publish and sell: Copyright 3) The amount: Goodwill Item #1: A patent is an exclusive right granted to manufacture and sell a patented item or to use a process for 20 years. Item #2: A copyright gives its owner the exclusive right to publish and sell a musical, literary, or artistic work. Item #3: Goodwill is the amount by which a company's value exceeds the value of its individual assets and liabilities.

On January 5, Barnaby, Inc., purchased a patent costing $100,000 with a useful life of 20 years. The company records its adjusting entries at the end of each year on December 31. Complete the necessary adjusting entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

100,000/20=5000 Amortization expense - patents 5000 debit Accumulated amortization - patents 5000 credit This entry includes a debit to Amortization Expense—Patents for $5,000 (or $100,000 × 1/20) and a credit to Accumulated Amortization—Patents for $5,000.

On January 1, 2019, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000.Using the straight-line method, the book value of the machinery at December 31, 2020, is approximately multiple choice $13,000 $10,000 $11,000 $30,000

13,000 Book value at December 31, 2020 = Cost of $33,000 − Accumulated depreciation of $20,000 (or $10,000 for 2019 + $10,000 for 2020) = $13,000.

On January 1, 2019, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000.Using the double-declining balance method, depreciation for 2019 is approximately multiple choice $10,000 $11,000 $20,000 $22,000

22,000 Straight-line rate = 100% ÷ useful life of 3 years = 1/3 Double-declining rate = Straight-line rate of 1/3 × 2 = 2/3 2019 Depreciation = Starting book value of $33,000 (or cost of $33,000 − Accumulated depreciation of $0) × rate of 2/3 = $22,000.

On January 1, 2019, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine has an estimated useful life of 3 years and a salvage value of $3,000.Using the double-declining balance method, depreciation for 2021 is approximately multiple choice $3,667 $2,445 $3,000 $667

667 Straight-line rate = 100% ÷ useful life of 3 years = 1/3 Double-declining rate = Straight-line rate of 1/3 × 2 = 2/3 2019 Depreciation = Starting book value of $33,000 (or cost of $33,000) × rate of 2/3 = $22,000 Book value at 12/31/19 = Cost of $33,000 − Accumulated depreciation of $22,000 = $11,000 2020 Depreciation = Book value at 12/31/19 of $11,000 × rate of 2/3 = $7,333 Book value at 12/31/20 = (Cost of $33,000 − Accumulated depreciation of $29,333 (or $22,000 + $7,333) = $3,667 2021 Depreciation = Book value at 12/31/20 of $3,667 × rate of 2/3 = $2,445; however, recording this amount of depreciation expense in 2021 would cause the book value to drop below the salvage value, so record only $667 (or 12/31/21 book value of $3,667 − salvage value of $3,000) of depreciation expense.

On January 1, 2018, Truesdale, Inc., purchased a piece of machinery for use in operations. The total acquisition cost was $33,000. The machine was expected to produce a total of 60,000 units during its life. The machine actually produced 16,000 units during 2018, 23,000 units during 2019, and 21,000 units during 2020. The machine has a salvage value of $3,000.Using the units-of-production method, the amount of depreciation that should be recorded during 2018, is approximately multiple choice $8,000 $10,000 $8,800 $11,000

8,000 Depreciation per unit = (Cost of $33,000 − Salvage value of $3,000) ÷ Total number of units expected to be produced of 60,000 = $0.50 per unit Depreciation for 2018 = Units produced in the period of 16,000 × Depreciation per unit of $0.50 = $8,000

Last year, Mountain Top, Inc., purchased a coal mine at a cost of $900,000. The salvage value has been estimated at $100,000. The coal mine has an estimated 200,000 tons of available coal. A total of 70,000 tons were mined and sold during the current year. Complete the necessary adjusting journal entry to record depletion expense for the current year by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

900,000-100000/200000=4 4*70,000=280,000 Depletion Expense 280,000 Debit Accumulated Depletion 280,000 credit Depletion per ton = (cost of $900,000 − salvage value of $100,000) ÷ 200,000 tons = $4 per ton. Depletion = depletion per unit of $4 × 70,000 tons extracted and sold = $280,000. The entry to record the depletion includes a debit to Depletion Expense for $280,000 and a credit to Accumulated Depletion for $280,000.

Lopez Company has a single employee, who earns a salary of $60,000 per year. That employee is paid on the 15th and last day of each month. On January 15, based, in part, on the information set forth in the accounting records, the following must be withheld from the employee's pay: FICA—Social Security Taxes (at 6.2%), FICA—Medicare Taxes (at 1.45%), Employee Federal Income Taxes (in the amount of $400), Employee State Income Taxes (in the amount of $25), and Employee Medical Insurance (in the amount of $100). (The employee's paycheck has not yet been prepared.) Entries to prepare the January 15 journal entry for Lopez would include:

A debit to Salaries Expense for $2,500, a credit to FICA—Social Security Taxes Payable for $155, a credit to FICA—Medicare Taxes Payable for $36.25, a credit to Employee Federal Income Taxes Payable for $400, a credit to Employee State Income Taxes Payable for $25, a credit to Employee Medical Insurance Payable for $100, and a credit to Salaries Payable for $1,783.75. The employee's gross pay is $2,500 (computed as $60,000 ÷ 24 pay periods). The entry to accrue the related salary expense, the liabilities for each amount withheld, and the net pay for this employee has a debit to Salaries Expense for $2,500, a credit to FICA—Social Security Taxes Payable for $155 (computed as $2,500 × 6.2%), a credit to FICA—Medicare Taxes Payable for $36.25 (computed as $2,500 × 1.45%), a credit to Employee Federal Income Taxes Payable for $400, a credit to Employee State Income Taxes Payable for $25, a credit to Employee Medical Insurance Payable for $100, and a credit to Salaries Payable for $1,783.75.

On January 2, Dixie, Inc., pays a salvage company $1,000 to haul away a machine costing $28,000 with accumulated depreciation of $28,000. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Accumulated depreciation 28,000 debit Loss on disposal of machinery 1000 debit Cash 1000 credit Machinery 28,000 credit The entry to record the disposal includes a debit to Accumulated Depreciation for $28,000, a debit to Loss on Disposal of Machinery for $1,000, a credit to Cash for $1,000, and a credit to Machinery for $28,000. Although the book value of the machine is zero (or cost of $28,000 − accumulated depreciation of $28,000), the cash payment to haul away the equipment caused the loss.

_____ are additional costs of plant assets that provide benefits extending beyond the current period and increase or improve the type or amount of service an asset provides.

Capital expenditures

Obligations that are due within one year are: multiple choice reported as a current liability. reported as a long-term liability. reported as both a current and a long-term liability. recorded only if it must be paid within the current year.

Current Liability

On December 29, 2020, Patel Products, Inc., sells a delivery van that cost $20,000. The equipment had accumulated depreciation of $16,000 at December 31, 2019. Annual depreciation on this equipment is $2,000 computed using straight-line depreciation. Complete the necessary journal entry to bring the accumulated depreciation up-to-date by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

Depreciation expense 2,000 debit Accumulated Depreciation expense 2,000 credit Annual depreciation on this equipment is $2,000. Because the equipment was discarded on December 29, 2020, a full year of depreciation needs to be recorded. The entry to bring the accumulated depreciation up-to-date includes a debit to Depreciation Expense for $2,000 and a credit Accumulated Depreciation for $2,000.

Lopez Company has a single employee, who earns a salary of $192,000 per year. That employee is paid on the 15th and last day of each month. On January 15, Lopez is subject to the following payroll taxes: FICA-Social Security Taxes (at 6.2% of the first $118,500 each employee earns in the calendar year), FICA-Medicare Taxes (at 1.45%), FUTA (at 0.6% of the first $7,000 each employee earns in the calendar year), and SUTA (at 5.4% of the first $7,000 each employee earns in the calendar year). The journal entry to record the employer's payroll tax expense and related liabilities would include a debit to:

Payroll Taxes Expense for $1,032. This employee earns $8,000 per pay period (or $192,000 ÷ 12 months ÷ 2 pay periods per month). Recall that FUTA and SUTA only apply to the first $7,000 the employees earns in a calendar year. As such, the entry to record the employer's payroll tax expense and related liabilities would include a debit to Payroll Taxes Expense for $1,032 (the total of the four employer payroll taxes), a credit to FICA-Social Security Taxes Payable for $496 (or $8,000 × 6.2%), a credit to FICA-Medicare Taxes Payable for $116 (or $8,000 × 1.45%), a credit to State Unemployment Taxes Payable for $378 (or $7,000 × 5.4%), a credit to Federal Unemployment Taxes Payable for $42 (or $7,000 × 0.6%), expense for $1,032.

Plant assets are:

Tangible assets used in the operation of a business that have a useful life of more than one accounting period

On August 4, Armstrong Trucking, Inc., paid $4,500 to replace the engine in one of its trucks. Complete the necessary journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

The journal entry is shown below: Truck A/c Dr $4,500 To Cash A/c $4,500 (Being the truck is replaced for cash) Since the truck is replaced so we debited the truck account and credited the cash account so that the correct posting can be done. The replacement cost increase its useful life which is capitalized so we also debited the truck account

Coolidge Company owes $1,000 for merchandise inventory purchased from Ross Company during April. The amount owed is now past-due. On June 15, Coolidge meets with Ross and convinces Ross to accept $400 cash and a 30-day, 10 percent, $600 note payable to replace the account payable. Prepare the June 15 journal entry for Coolidge entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

accounts payable debit 1000 cash credit 400 notes payable credit 600 The entry includes a debit to Accounts Payable for $1,000, a credit to Cash for $400, and a credit to Notes Payables for $600.

On December 29, 2019, Patel Products, Inc., sells a delivery van that cost $20,000. After recording the entry to bring the accumulated depreciation up-to-date, the delivery van had accumulated depreciation of $18,000. Patel received $2,000 cash from the purchaser of the delivery van. Complete the necessary journal entry to record the sale by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

cash 2,000 debit accumulated depreciation 18,000 debit Delivery Van 20,000 credit The book value of the equipment at the time of the sale was $2,000 (or cost of $20,000 − updated accumulated depreciation of $18,000). Because Patel received $2,000 cash from the purchaser of the delivery van, an amount equal to the equipment's book value at the time of the sale, there is no gain or loss. The entry to record this sale at book value includes a debit to Cash for $2,000, a debit to Accumulated Depreciation for $18,000, and a credit to Delivery Van for $20,000.

On September 1, Vicario, Inc., borrows $100,000 from First National Bank at 6 percent annual interest. This note is due in 90 days. Prepare the September 1 journal entry for Vicario by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

cash debit 100000 notes payable credit 100000 The entry includes a debit to Cash for $100,000 and a credit to Notes Payable for $100,000.

On February 13, a jewelry store sells an engagement ring with a sales price of $10,000 to a nervous young man, who pays in cash. The sale is subject to a 9.75 percent sales tax. Prepare the revenue portion of the February 13 by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

cash debit 10975 sales credit 10000 tax payable credit 975 The entry to record the revenue portion of the transaction has a debit to Cash for 10,975 (computed as $10,000 + ($10,000 × 9.75%)), a credit to Sales for $10,000, and a credit to Sales Tax Payable for $975 (computed as $10,000 × 9.75%).

A company can be aware of an obligation, but not know how much it will be required to pay. This is known as an uncertainty in: multiple choice whom to pay. when to pay. how much to pay. when to record.

how much to pay

On December 16, 2019, Carboy, Inc., borrows $120,000 cash from Third National Bank at 9 percent annual interest. The note is due in 45 days. At December 31, 2019, Carboy records any unpaid interest with an adjusting entry. On January 30, 2020, Carboy pays the principal and interest owed on the bank note. Prepare the January 30 entry by Carboy for the payment (maturity) of the note plus interest by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

interest expense debit 900 = (120000.09(30/360)) interest payable debit 450 = (120000.09(15/360)) notes payable debit 120,000 cash credit 121,350 The note was outstanding for 15 days (between December 16, the date of the note, and December 31, year-end). Accrued interest in the amount of $450 (computed as $120,000 × 9% × 15/360) was recorded in an adjusting entry on December 31, 2019. During 2020, the note is outstanding for 30 days (the note term of 45 days − the 15 days it was outstanding during December 2019). Interest expense of $900 ($120,000 × 9% × 30/360) is incurred during January 2020.The entry for the payment of the note plus interest includes a debit to Interest Expense for $900 (the amount incurred during January 2020), a debit to Interest Payable for $450 (the amount accrued at December 31, 2019), a debit to Notes Payable for $120,000, and a credit to Cash for $121,350 ($120,000 + $1,350) or ($120,000 × 9% × 45/360).

The useful life of a new plant asset _____.

might be estimated based on the experience of others or on engineering studies and judgement if the company does not have past experience with a similar asset

Employers must pay all of the following except: multiple choice Social Security taxes Medicare taxes Pension contributions FUTA taxes SUTA taxes

pension contributions

Voluntary deductions from employee pay can include all of the following:

pension contributions life insurance premiums union dues charitable giving medical insurance premiums Voluntary employee deductions can include charitable giving, medical and life insurance premiums, pension contributions, and union dues. Medicare and Social Security taxes are not voluntary deductions, but mandatory.

The double-declining-balance and straight-line depreciation methods: multiple choice are the only acceptable methods of depreciation for financial reporting. produce the same amount of annual depreciation expense. result in the same book value at the end of each year. produce the same amount of total depreciation over an asset's useful life.

produce the same amount of total depreciation over an asset's useful life. The straight-line, units-of-production, and double-declining-balance depreciation methods all produce the same amount of total depreciation over an asset's useful life.

The acquisition cost of a plant asset does not include

repair costs resulting from damage to the plant asset while it was being unpacked

On March 1, a designer received a check for $7,500 from a customer for services to be provided after the customer chooses a color scheme for the first floor of her house. On July 31, the designer completed the design work for this customer. Prepare the July 31 journal entry by selecting the account names from the drop-down menus and entering the dollar amounts in the debit or credit columns.

unearned revenue debit 7500 services revenue credit 7500 Since the services are now earned, the entry includes a debit to Unearned Revenue for $7,500 (to reduce the liability) and a credit to Services Revenue for $7,500 (to increase the revenue).