Acct 4

Discount on Bonds Payable is shown on the balance sheet as a(n) _____________

contra-liability

The effect of recording depreciation for the year is a(n):

decrease in assets and a decrease in net income.

Plant assets are depreciated because

the accrual basis of accounting requires matching of costs to revenues.

On January 1, 2012, Action Inc. issued $1,000,000 of 10% bonds at face value. These bonds are due in 10 years with interest payable semi-annually on June 30 and December 31. What is the amount of interest paid in 2012?

$100,000

On January 2, 2012, Senate Inc. issued $10,000,000 of 10-year, 9% bonds at 87. How much of the discount will be amortized in the first year under the straight-line method?

130,000

Barnes Company issued $500,000 of bonds for $498,351. Interest is paid semiannually. The bond markets and the financial press are likely to report the bond issue price as:

99.67

Which of the following would describe a callable bond?

Borrower has the right to pay off the bonds prior to due date.

Which of the following would most likely be classified as a current liability?

Portion of long-term debt due within one year

Stricker Company sold equipment for $4,000. This resulted in a $1,500 loss. What is the impact of this sale on the balance sheet?

Reduces total assets

Which of the following is not an investing activity?

Sale of merchandise for cash

Goodwill can be recorded as an asset when a(n):

business is purchased and payment is made in excess of the value of the net assets.

On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method. Refer to the information provided for Gump Shrimp Company. What would be the book value of the ship after ten years?

$100,000

On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method. Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2012?

$160,000

The interest charged by the bank, at the rate of 9%, on a 3-month, discounted note payable for $100,000 is:

$2,250.

On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method. Refer to the information provided for Gump Shrimp Company. What was the depreciation expense for Gump Shrimp for the year ended December 31, 2011?

$200,000

If a company's current ratio is 3.0 and the current liabilities are $100,000, then the current assets are:

$300,000.

On January 1, 2011, Gump Shrimp Company purchased a ship for $1,000,000. It has a ten-year useful life and a salvage value of $100,000. The company uses the double-declining-balance method. Refer to the information provided for Gump Shrimp Company. What was the book value of the ship at the end of the third year?

$512,000

On the issuance date, the Bonds Payable account had a balance of $80,000,000 and Premium on Bonds Payable had a balance of $5,000,000. What was the issue price of the bonds?

$85,000,000

Which of the following should be included in the acquisition cost of a piece of equipment?

-Transportation costs - Installation costs - Testing costs prior to placing the equipment into production ( All of the above )

Which of the following statements regarding amortization is true?

Amortization of a premium continues over the life of the bond until the balance in the account is reduced to zero.

On January 1, 2011, XYZ Corporation sold a piece of equipment for $30,000 which it had used for several years. The equipment had cost $45,000, and its accumulated depreciation amounted to $20,000 at the time of the sale. What are the net effects on the accounting equation of selling the equipment?

Assets and equity increase $5,000

____________________ is a cost that improves an operating asset and is added to the asset account.

Capital expenditure

____________________ is the right to produce or sell a published work.

Copyright

Which of the following accounts would not be reported in the property, plant, and equipment section of a balance sheet?

Depreciation Expense--buildings

International Corporation leased a building from Domestic Company. The 10-year lease is recorded as a capital lease. The annual payments are $10,000 and the recorded cost of the asset is $67,100. The straight-line method is used to calculate depreciation. Which of the following statements is true?

Depreciation expense of $6,710 will be recorded each year by International Corporation

Aggie, Inc. purchased a truck at a cost of $12,000. The truck has an estimated salvage value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2011, and was used 27,000 hours in 2011 and 26,000 hours in 2012. Refer to Aggie, Inc.'s information presented above, what method of depreciation will maximize depreciation expense in 2011?

Double-declining-balance

Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000. Refer to the information provided for Clear Window Cleaners. Clear Window is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2011?

Double-declining-balance depreciation creates both the larger expense and the larger tax savings.

Butler Corporation uses plant assets that are subject to rapid decreases in value due to obsolescence and physical deterioration. Which of the following depreciation methods is most appropriate to measure the decline in the usefulness of the company's assets?

Double-declining-balance method

Which of the following is an intangible asset?

Goodwill

______________ is an account that can only exist if one company purchases another business and the cost exceeds the fair market values of the identifiable net assets at the time acquired

Goodwill

Xtra Company purchased goodwill from Argus for $144,000. Argus had developed the goodwill over 6 years. How much would Xtra amortize the goodwill for its first year?

Goodwill is not amortized

Which of the following statements regarding contingent liabilities is true?

If they are probable and estimable, then they must be recorded even before the outcome of the future event

Which of the following is included in the cost of constructing a building?

Insurance costs during construction

If bonds are issued at 101.25, this means that:

Interest Expense Discount on Bonds Payable Cash

Fisher Apartments purchased an apartment building to rent to university students on December 15, 2011. The tenants moved in on January 1, 2012. On Super Bowl Sunday, a student punched a hole in the wall when his favorite team fumbled the ball. It cost the landlord $400 to repair the hole. How should this cost be recorded?

It should be recorded as repair and maintenance expense.

Which balance sheet section is most affected by investing activities?

Long-term assets

How should intangible assets be disclosed on the balance sheet?

Net of the costs already amortized

Grayson Bank agrees to lend the Trust Company $100,000 on January 1. Trust Company signs a $100,000, 12%, 9-month note. What entry will Trust Company make to pay off the note and interest at maturity assuming that interest has been accrued to September 30?

Notes Payable 100,000 Interest Payable 9,000 Cash 109,000

Which of the following accounts would not appear on the balance sheet of a lessee company recording a capital lease?

Rent expense on the leased asset.

Which of the following costs related to the purchase of production equipment incurred by ABC Company during 2011 would be considered a revenue expenditure?

Repair and maintenance costs during the equipment's first year of service

Which of the following is an example of a capital expenditure?

Replacing an engine in a company car

_ refers to the market value of the asset at the end of its useful life

Salvage value

____________________ is the depreciation method used most frequently. ____________________ is the depreciation method considered "accelerated".

Straight-line, Double-declining-balance

Zero, Inc. purchased equipment at the beginning of 2011 for $200,000. Zero decided to depreciate the equipment over a 5- year period using the double-declining-balance method. Zero estimated the equipment's salvage value at $20,000. Which of the following statements is correct concerning Zero's financial statements at December 31, 2011?

The book value of the equipment is $120,000 $200,000 (Cost) (200,000 2/5) (2011 Depreciation expense) = $120,000 (Book value)

If a company's fixed asset turnover ratio decreased from 2010 to 2011, which of the following conclusions can be made?

The company produced less sales in 2011 for each dollar invested in fixed assets compare to 2010.

Banister Company wishes to issue $600,000 of 10-year, 7% bonds, with interest paid annually at the end of the year. The market rate of interest is currently 5%. What information is needed in order to determine the issue price of the bond?

The face value of the bonds, the stated rate of interest, the market rate of interest, and the bond life.

Which of the following statements about bond accounting under the effective interest method is correct?

The interest expense is calculated as the carrying value the market rate.

Which of the following lease conditions would result in a capital lease to the lessee?

The lessee obtains enough rights to use the asset and is in substance the owner

When will bonds sell at a discount?

The stated rate of interest is less than the market rate of interest at the time of issue

When determining the amount of interest to be paid on a bond, which of the following information is necessary

The stated rate of interest on the bonds

If the depreciation method is known, which of the following sets of factors is needed to calculate depreciation on plant and equipment?

The useful life of the asset, its historical cost, and its estimated salvage value

Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000. Refer to the information provided for Clear Window Cleaners. By what amount would double-declining-balance depreciation exceed straight-line depreciation over the 5-year life of the equipment?

Total depreciation expenses under double-declining-balance and straight-line depreciation are equal.

Clear Window Cleaners purchased new cleaning equipment at the beginning of 2011. The equipment has a cost of $53,000, an estimated life of 5 years, and an estimated residual value of $3,000. A full year's depreciation expense is to be recorded in 2011. The equipment was used 20,000 hours during 2011 and 24,000 hours during 2012. The number of expected hours over five years is 125,000. Refer to the information provided for Clear Window Cleaners. Clear Window Cleaners wants to use the depreciation method that will result in the highest net income for 2011. Which method should be used?

Units-of-activity

Fly High Airlines acquires a new aircraft. It has an estimated life of 10 years and should be used for 20,000 hours of flight. What is the most appropriate method of depreciation to properly match revenues and expenses?

Units-of-activity method

ABC and XYZ Companies purchased identical equipment having an estimated useful life of ten years. ABC uses the straightline depreciation method and XYZ uses the double-declining-balance method of depreciation. Assuming the two entities are similar in all other respects, which of the following statements is correct?

XYZ's book value will be less than ABC's book value at the end of year two.

Under the ____________________ method of amortization, an equal amount of discount or premium is amortized each time interest is paid.

__________________ bonds may be retired by the issuing company before their specified due date

The Discount on Bonds Payable account is shown on the balance sheet as

a contra-liability.

On the balance sheet, the cumulative amount of depreciation expense recognized to date on a fixed asset is called:

accumulated depreciation.

The Premium on Bonds Payable account is shown on the balance sheet as:

an addition to a long-term liability.

The portion of long-term debt due within one year should:

be reclassified as a current liability.

A company should choose a depreciation method that:

best allocates the original cost of the asset to the periods benefited by the use of the asset

A(n) ____________________ lease is recorded on the lessee's balance sheet as an asset and related liability

capital

Expenditures that increase the expected useful life or productivity of the asset are:

capital expenditures.

If technology changes rapidly, a firm should:

consider an accelerated rate of depreciation.

An obligation that arises from an existing condition whose outcome is uncertain and whose resolution depends on a future event is called a ____________________.

contingent liability

The current ratio is computed by dividing current assets by ____________

current liabilities

The amount of federal income taxes withheld from an employee's gross pay is recorded as a:

current liability.

The journal entry to record the issuance of a note for the purpose of borrowing funds is:

debit Cash; credit Notes Payable.

The journal entry to record the payment of an ordinary note is:

debit Notes Payable and Interest Expense; credit Cash.

Victor Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a:

debit to Cash for $960,000.

The Miracle Corporation issues $1,000,000, 10-year, 8% bonds at 96. The journal entry to record the issuance will show a:

debit to Discount on Bonds Payable for $40,000.

If bonds were initially issued at a premium, the carrying value of the bonds on the issuer's books will:

decrease as the bonds approach their maturity date

With the effective interest method of amortization, the amortization of a bond premium results in a(n)

decrease in interest expense.

Arnold, Inc. purchased a truck on January 1, 2009, for $40,000. The truck had an estimated life of 5 years and an estimated salvage value of $5,000. Arnold Inc. used the straight-line method to depreciate the asset. On July 1, 2012, the truck was sold for $7,000 cash. The journal entry to record the sale of the truck in 2012:

decreases equity

Disc Company purchased equipment at the beginning of 2010 for $200,000. The company decided to depreciate the equipment over an 5-year period using the straight-line method. The company estimated the equipment's salvage value at $20,000. The journal entry to record depreciation expense for 2011 is a debit to:

depreciation expense and a credit to accumulated depreciation for $36,000 ($200,000 (Cost) 20,000 (Salvage value)) / 5 (Useful life) = $36,000 (Depreciation expense)

If the market rate of interest is greater than the stated rate, then the bonds are issued at a(n) __________

discount

The depreciation method that does not use salvage value in calculating the first year's depreciation expense is:

double-declining-balance method

Current liabilities are:

due and payable within one year.

Assets classified as property, plant, and equipment are reported at:

each asset's original cost less depreciation since acquisition.

The amount of money the borrower agrees to repay at maturity of a bond is usually referred to as the ____________________.

face value

If the market rate of interest is 10%, a $10,000, 12%, 10-year bond that pays interest semiannually would sell at an amount:

greater than face value.

Capitalizing an expenditure rather than recording it as a revenue expenditure:

impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.

If bonds were initially issued at a discount, the interest expense on the bonds calculated using the effective interest method will:

increase as the bonds approach their maturity date.

When bonds are issued by a company, the accounting entry shows an:

increase in assets and an increase in liabilities.

With the effective interest method of amortization, the amortization of a bond discount results in a(n):

increase in interest expense.

Resources that are used in operations more than one year with no physical substance are called:

intangible assets.

A disposal of a used delivery truck is a transaction shown on the statement of cash flows under:

investing activities

Cash flows from acquiring and disposing of long-term assets are classified as:

investing activities

A company purchases equipment for $32,000 cash. This transaction should be shown on the statement of cash flows under:

investing activities.

Land is not depreciated because:

it will provide future benefits for the company for an unlimited period of time.

Obligations that extend beyond one year are referred to as _______________

long-term liabilities

Bonds are sold at a premium if the:

market rate of interest was less than the stated rate at the time of issue

The ____________________ is the rate of return that investors in the bond markets demand for bonds of similar risk.

market rate of return

n Using the straight-line depreciation method will cause a company to incur ____ tax expense in the early years of an asset's life than they would experience using an accelerated method of depreciation.

more

According to accounting standards, the costs of intangible assets with an indefinite life, such as goodwill, should:

not be amortized, but should be reviewed annually for impairment.

Although operating leases are not recorded on the balance sheet by the lessee, they are disclosed in the ____________________.

notes to the financial statements

Long-term liabilities generally include

obligations that extend beyond one year.

The bond issue price is determined by calculating the:

present value of the stream of interest payments and the present value of the maturity amount.

Under the effective interest method, the cash paid on each interest payment date will:

remain constant regardless of the issuance price.

When bonds are sold for less than the face amount, this means that the:

stated rate of interest is less than the market rate of interest.

Cash paid to purchase significant amounts of fixed assets would be reported in the statement of cash flows in:

the cash flows from investing activities section.

Depreciation is a process by which

the cost of plant and equipment is allocated to expense over its useful life.

Using different depreciation methods for book purposes versus tax purposes for the same asset is

the direct result of the differing goals of financial and tax accounting.

If a company's bonds are callable:

the issuing company is likely to retire the bonds before maturity if the bonds are paying 8% interest while the market rate of interest is 4%.

Depreciation is:

the process of systematically and rationally allocating the cost of a fixed asset over its useful life

The accounting life of intangible assets is determined by

their legal lives or useful lives, whichever is shorter

The exclusive right to use a certain name or symbol is called as:

trademark

All of the following below are needed for the calculation of straight-line depreciation except:

units produced.