practice quiz questions financial acct test 4

On January 1, 2011, Lawton, In. purchased a delivery truck for $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 used 27,000 hours in 2011 and 26,000 hours in 2012. If Lawton uses the straight-line method, what is depreciation expense for the year 2011?

$2,000 ((12,000-10,000)/5years)

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

The lessee can purchase the property for $1 at the end of the lease term.

The Kaplan Group sold $200,000 of 10 year bonds for $190,000. The rate on the face of the bonds was 8% and interest is payable annually on December 1st. What entry would be made on December 1st to when the interest is paid?

debit interest expense; credit cash and discount on bonds payable

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

the direct result of differing goals of financial and tax accounting

The accounting life of intangible assets is determined by:

their legal lives or useful lives, whichever is shorter

Jensen Company will pay salaries for the pay period of December 15-31, 2012. Based on the following information, what amount would the company record as salaries expense on December 31, 2012? Gross Salaries = $10,000 State Income Tax withheld = $1,200 Federal Income Tax withheld = $1,500 FICA = $565

$10,000

On January 1, 2011, Lawton In. purchased a delivery truck for $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. If Lawton uses the double-declining balance method, what is depreciation expense for the YEAR 2012 (the second year)?

$2,880

Victor Company purchased a patent for $250,000 at the beginning of 2011, and estimated that its expected useful life was 10 years. The patent had a legal life of 20 years. What amount should be recorded as amortization expense for the patent in 2011?

$25,000 (250,000/10)

On January 1, 2011, Lawton, In. purchased a delivery truck for $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 used 27,000 hours in 2011 and 26,000 hours in 2012. If Lawton uses the double-declining balance method, what is depreciation expense for the year 2011?

$4,800

During 2013, 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. At the beginning of the year, the balance in the warranty account was $42,000. During the year, $11,000 in claims were incurred and paid (honoring the warranty). What was the balance in the estimated warranty liability at the end of the year?

$47,000

Jensen Company will pay salaries for the pay period of December 15-31, 2012. Based on the following information, what amount would the company record for cash on December 31, 2012? Gross Salaries = $10,000 State Income Tax withheld = $1,200 Federal Income Tax withheld = $1,500 FICA = $565

$6,735 (gross salaries-everything else)

A graphics design company issued bonds in the amount of $1,000,000 with a stated interest rate of 8%. If the interest is paid semiannually and the bonds are due in 10 years, what is the total amount of interest that would be paid over the life of the bonds?

$800,000 ($1,000,000 x .08 x 10)

A company has total assets of $350,000 consisting of current assets of $115,000, Property, Plant, and Equipment of $200,000 and other assets of $35,000. The company has total liabilities of $100,000, consisting of current liabilities of $65,000 and other liabilities of $35,000. What is the current ratio?

1.77 (current assets/current liabilities)

Which of the following would describe a callable bond?

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

The Exchange Apartment complex purchased an apartment building to rent to the university students on December 15, 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 by the apartment complex?

It should be recorded as repair and maintenance expense.

When will bonds sell at a discount?

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

When will bonds sell at a premium?

The stated rate of interest is more that the market rate at the time of issue.

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

be reclassified as a current liability

A company should use a depreciation method that:

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

The amount of federal income taxes withheld from an employee's gross pay is recorded by the employer 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

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

debit notes payable-$100,000, debit interest payable-$9,000; credit cash-$109,000

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

decrease in assets and a decrease in net income

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

depreciation expense - buildings

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

each asset's original cost less depreciation since acquisition

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

increase as the bond approaches their maturity date

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

intangible assets

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

investing activities

On January 1, 2011, James Company sold a machine for $10,000 that it had used for several years. The machine was originally purchased for $22,000 and had accumulated depreciation of $9,000 at the time of the sale. What gain or loss will be reported on the income statement for the sale of the machine?

loss of $3,000 (22,000-(10,000+9,000))

Which of the following is NOT classified as a current liability?

note payable, due within 2 years

Long-term debt generally includes:

obligations that extend beyond one year

Depreciation is a process by which:

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

Depreciation is:

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