Exam #3
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment?
$0.10 units-of-production: (natural resources) Depr Rate per Unit = (Cost - Residual Value) / Total Expected Usage Depr Exp = Depr Rate per Unit x Actual Usage Depr Rate per Hour = ($12,000 - $2,000) / 100,000 - $0.10
An oil company purchased 10,000 acres of land on January 1, 2019, for $5,000,000, on which it developed an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that 500,000 barrels of oil can be extracted from the site over 5 years after drilling begins. The land has a residual value of $250,000. Assuming 50,000 barrels of oil were extracted from the land in 2021, how much depletion would be recorded?
$1,575,000 use units-of-production b/c oil is a natural resource Total Cost = 5,000,000 + 11,000,000 = $16,000,000 Depletion Rate = (16,000,000 - 250,000) / 500,000 = 31.50 per barrel Depletion Exp = 31.5 x 50,000 = $1,575,000
During the year, Going, Going, Gone sold 100 hot air balloons for $4,000 each. The balloons carry a 5-year warranty for defects. Estimates indicate that repair costs will average 4% of the total selling price. The estimated warranty liability at the beginning of the year was $42,000. $11,000 in claims was actually incurred during the year to honor their warranty. What was the balance in the estimated warranty liability at the end of the year?
$47,000 Beg. Warranty Liability + Warranty Liability from current period -- Warranty Claims = Ending Warranty Liability 42,000 + (4,000 x 100 x 4% = 16,000) - 11,000 = $47,000
A company purchased land and incurred the following costs: Purchase Price = $500,000 Excavation Costs = $50,000 Razing Old Building = $12,500 Broker Fees = $10,000 Cost of a Parking Lot = $25,000 What is the cost of the land?
$572,500 500,000 + 50,000 + 12,500 + 10,0000 = $572,500 *do not include land improvements in the cost of the land
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the straight-line method of depreciation, what is the book value at December 31, 2021?
$6,000 straight-line: (intangible assets) Depr Exp = (Cost - Residual Value) / Useful Life Acc Depr = sum of all Depr Exp BV = Cost - Acc Depr Depr Exp = ($12,000 - $2,000) / 5 = $2,000 Acc Depr = $2,000 x 3 (beg 2019 - end 2021) = $6,000 BV = $12,000 - $6,000 = $6,000
Korsgard Auto Parts borrowed $100,000 from a bank on October 1, 2019, at 10% interest. The interest and principal are due on October, 1, 2020. Preapre the adjusting journal entry on December 31, 2019.
Date: Dec. 31, 2019 DR Interest Expense $2,500 CR Interest Payable $2,500 $100,000 x 10% x 3/12 = $2,500
Korsgard Auto Parts borrowed $100,000 from a bank on October 1, 2019, at 10% interest. The interest and principal are due on October, 1, 2020. Prepare the required journal entry on October 1, 2019.
Date: Oct. 1, 2019 DR Cash $100,000 CR Notes Payable $100,000
Korsgard Auto Parts borrowed $100,000 from a bank on October 1, 2019, at 10% interest. The interest and principal are due on October, 1, 2020. Prepare the journal entry (or entries) on October 1, 2020.
Date: Oct. 1, 2020 DR Notes Payable $100,000 DR Interest Expense $7,500 DR Interest Payable $2,500 CR Cash $110,000 $100,000 x 10% x 3/12 = $2,500 $100,000 x 10% x 9/12 = $7,500
What is the impact on the accounting equation of recording a payment to a supplier on account? a) Both assets and liabilities decrease. b) Both assets and stockholders' equity decrease. c) Liabilities decrease and stockholders' equity increases. d) Liabilities increase and stockholders' equity decreases.
a) Both assets and liabilities decrease. 1 - purchase supplies on account Dr.: Supplies $$ Cr.: Accounts Payable $$ 2 - payment to the supplier Dr.: Accounts Payable $$ (dec. liab.) Cr.: Cash $$ (dec. assets)
During the first quarter of the current year, the company sold 4,000 batteries on credit for $150 each plus sales tax of 6%. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. Which of the following records the sale of the batteries? a) DR Accounts Receivable $636,000; CR Sales Revenue $600,000, Sales Tax Payable $36,000 b) DR Accounts Receivable $600,000; CR Sales Revenue $600,000 c) DR Accounts Receivable $600,000; CR Sales Revenue $564,000, Sales Tax Payable $36,000 d) DR Accounts Receivable $636,000; CR Sales Revenue $636,000
a) DR Accounts Receivable $636,000; CR Sales Revenue $600,000, Sales Tax Payable $36,000 Sales Revenue = 4,000 x $150 = $600,000 $600,000 x 4% = $36,000 = Sales Tax $600,000 + $36,000 = $636,000
This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at rates at 2% and 5% respectively. The company's year-end is December 31. Which of the following statements is true regarding the unemployment taxes to be recorded? a) $700 of unemployment taxes will be withheld from employee paychecks. b) $700 of unemployment tax expenses will be included on the income statement. c) $1,400 of unemployment taxes payable will be included on the balance sheet. d) $1,400 of unemployment tax expenses will be included on the income statement.
b) $700 of unemployment tax expenses will be included on the income statement. Employee: Debit Salary Exp; Credit: Income Tax (Fed & State), FICA (SS & Medicare), 401(K), Health Insurance, and Net Pay; Employer: Debit Tax Exp; Credit: FICA (SS & Medicare), FUTA, and SUTA
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. Which of the following is the correct journal entry to record the sale of the gift cards? a) DR Cash $50,000; CR Accounts Payable $50,000 b) DR Cash $50,000; CR Unearned Sales Revenue $50,000 c) DR Cash $50,000; CR Sales Revenue $50,000 d) DR Cash $50,000; CR Prepaid Sales Revenue $50,000
b) DR Cash $50,000; CR Unearned Sales Revenue $50,000
This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at rates at 2% and 5% respectively. The company's year-end is December 31. Which of the following statements is true regarding the entry to record wages and the related liabilities? a) Social security tax payable will be debited in the amount of $765. b) Social security tax payable will be credited in the amount of $620. c) Medicare tax payable will be debited in the amount of $145. d) Federal income taxes payable will be credited in the amount of $2,100.
b) Social security tax payable will be credited in the amount of $620. Employee: Debit Salary Exp; Credit: Income Tax (Fed & State), FICA (SS & Medicare), 401(K), Health Insurance, and Net Pay; Employer: Debit Tax Exp; Credit: FICA (SS & Medicare), FUTA, and SUTA
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was sued 27,000 hours in 2019 and 26,000 hours in 2020. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2019? a) straight-line b) double-declining-balance c) units-of-production d) all methods produce the same expense in 2019.
b) double-declining-balance differences btw 3 methods -straight line (exp same each year) -double-declining-balance (exp is higher in early years & lower in later years) -units-of-production (exp varies, depends on the usage)
During January, Gaston Wholesalers experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a 30-day note that includes 9% interest. What journal entry is needed to record the retirement of the note on the maturity date? a) Debit notes payable and credit cash. b) Debit notes payable, credit interest expense, and credit cash. c) Debit notes payable, debit interest expense, and credit cash. d) Debit accounts payable, debit interest expense, and credit notes payable.
c) DR Notes Payable $5,000 DR Interest Expense $75 CR Cash $5,075 AP $5,000 due on 05/01/01. unable to pay signed a NP @ 5% to extend to 07/01/01 (due day) 05/01: transfer AP -> NP $5,000 07/01: pay $5,000 + note CASH --> (principal + int exp.) (cover only 1 acc. period so no int. pay.) Cash = credit Principal + Int Exp = debit 5,000 x 2/12 x 9% = $75
The salon sells $50,000 of gift cards in May 2019. These gift cards may be used anytime before their expiration on May 31, 2020. During May 2019, $10,000 of the gift cards were redeemed for salon services. Which of the following is the correct journal entry to record the redemption of the gift cards? a) DR Unearned Sales Revenue $10,000; CR Accounts Payable $10,000 b) DR Unearned Sales Revenue $10,000; CR Cash $10,000 c) DR Prepaid Sales Revenue $10,000; CR Sales Revenue $10,000 d) DR Unearned Sales Revenue $10,000; CR Sales Revenue $10,000
d) DR Unearned Sales Revenue $10,000; CR Sales Revenue $10,000
What is the impact on the accounting equation of recording the accrual of interest expense? a) Both assets and liabilities decrease. b) Both assets and stockholders' equity decrease. c) Liabilities decrease and stockholders' equity increases. d) Liabilities increase and stockholders' equity decreases.
d) Liabilities increase and stockholders' equity decreases Dr.: Interest Exp $$ (dec. SE) Cr.: Interest Payable $$ (inc. liab.)
An example of a current liability that must be accrued is a) accounts payable b) revenue received in advance c) current maturity of long-term debt d) wages payable
d) wages payable
On January 1, a company sold a machine for $5,000 that it had used for several years. The machine cost $11,000, and had accumulated depreciation of $4,500 at the time of sale. What gain or loss will be reported on the income statement for the sale of the machine for the year ended December 31?
loss of $1,500 $11,000 - $4,500 = $6,500 sold for $5,000 $6,500 > $5,000 = loss of $1,500
Geiss Motorsports sold 50 motorbikes for $1,000 each. The bikes carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of the total selling price. What is the amount that would be recorded in that estimated warranty liability account as a result of selling the bikes?
$1,000 50 x $1,000 x 2% = $1,000
Fantasy Cruise Lines; On January 1, 2019 the company purchased a ship for $1,000,000. It has a 10-year useful life and a residual value of $100,000. The company uses the double-declining-balance method. Refer to Fantasy Cruise Lines. What is the depreciation expense for the year ended December 31, 2020?
$160,000 double-declining-balance Depr Exp = BV x 2/Useful Life BV = (Cost - Acc Depr) Acc Depr = sum of all Depr Exp Depr Exp 2019 = $1,000,000 x 2/10 = $200,000 Depr Exp 2020 = ($1,000,000 - $200,000) x 2/10 = $160,000
Fernbank Farms; This company purchased a semi truck at the beginning fo 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. Refer to Fernbank Farms. What amount should be recorded as depreciation expense each year starting in 2021?
$18,000 straight-line: (intangible assets) Depr Exp = (Cost - Residual Value) / Useful Life Acc Depr = sum of all Depr Exp BV = Cost - Acc Depr Depr Exp = ($100,000 - $20,000) / 5 = $16,000 Acc Depr = $16,000 x 2 = $32,000 BV = $100,000 - $32,000 = $68,000 $68,000 + $30,000 = $98,000 Depr Exp 2021 = ($98,000 - $8,000) / 5 = $18,000
This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2019, and was used 27,000 hours in 2019 and 26,000 hours in 2020. If the company uses the double-declining balance depreciation method, what amount is the depreciation expense for 2020?
$2,880 double-declining-balance Depr Exp = BV x 2/Useful Life BV = (Cost - Acc Depr) Acc Depr = sum of all Depr Exp 2019 Depr Exp = ($12,000) x 2/5 = $4,800 2020 Depr Exp = ($12,000 - $4,800) x 2/5 = $2,880
A company purchased a patent for $100,000 at the beginning of the current year which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in the current year?
$20,000 use straight-line method b/c patent is a intangible asset Residual Value = 0, useful life use 5 years Depr Exp = 100,000/5 = $20,000
Fernbank Farms; This company purchased a semi truck at the beginning of 2019 at a cost of $100,000. The truck had an estimated life of 5 years, an estimated residual value of $20,000, and will be depreciated using the straight-line method. On January 1, 2021, the company made major repairs of $30,000 to the truck that extended the life 3 years. Thus, starting with 2021, the truck has a remaining life of 5 years and a new salvage value of $8,000. Refer to Fernbank Farms. What is the truck's book value at December 31, 2021?
$80,000 straight-line: (intangible assets) Depr Exp = (Cost - Residual Value) / Useful Life Acc Depr = sum of all Depr Exp BV = Cost - Acc Depr Depr Exp = ($100,000 - $20,000) / 5 = $16,000 Acc Depr = $16,000 x 2 = $32,000 BV = $100,000 - $32,000 = $68,000 $68,000 + $30,000 = $98,000 Depr Exp 2021 = ($98,000 - $8,000) / 5 = $18,000 BV 2021 = $98,000 - $18,000 = $80,000
Depreciation is a process by which a) replacement funds are accumulated for plant and equipment b) the decline in market value of plant and equipment is determined and recorded c) the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset d) the difference between current market value and historical cost of plant and equipment
c) the cost of plant and equipment is allocated to expense over the time period which benefit from the use of the asset
The payment of Accounts Payable results in a(n) a) Decrease in both liabilities and assets. b) Increase in liabilities and decrease in stockholders' equity. c) Decrease in liabilities and increase in assets. d) Decrease in liabilities and increase in stockholders' equity.
a) Decrease in both liabilities and assets. Dr.: Accounts Payable $$ (dec. liab.) Cr.: Cash $$ (dec. assets)
A manufacturing company's weekly payroll is $80,000 for a 5-day work week beginning each Monday and ending each Friday. The last time salaries and wages were recorded was Friday, December 26. What adjustment is needed on December 31, the last day of the company's fiscal period? a) Increase wages expense by $48,000 b) Decrease wages payable by $48,000 c) Decrease cash by $48,000 d) No adjustment is necessary since the next payday will not occur until the following year.
a) Increase wages expense by $48,000 M T W (12/31/01 end of year) Th F (12/26/01 paid); (01/02/02 payday) Sa Su $80,000 x 3/5 = $48,000
On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called a) accumulated depreciation b) accumulated amortization c) depreciation expense d) amortization expense
a) accumulated depreciation