Accounting 3, Financial Accounting Chapters 1-3

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.

$1000 Reason: This is a partial year depreciation. $26,000 - 2,000 = $24,000/4 = $6000 per year. $6000 x 2/12 = $1,000.

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.

$2,400 Reason: (14,000-2000)/5 x 7/12=1,400 for a partial year depreciation.

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.

$2,812.50: (100%/8=.125) x 2=25%. 15,000 x 25%=3,750 for first year. Second year=(15,000-3750) x 25% =2812.50.

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 real estate commissions of $15,000. PT removed the unwanted building and graded the land for a total cost of $35,000. PT should record the cost of the land at:

$250,000

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

$350,000

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.

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

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, using the straight-line method, at the end of the period?

13000

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 $

17000

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.

1850 Reason: (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 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 $ per year.

2000

Juno Co. purchased a machine for $10,000 and estimates it will use the machine for three years with a $2,000 salvage value. It expects to produce a total of 8,000 units as follows: 3,000 during year one; 2,500 during year two; and 2,500 during year three. Using the units-of-production depreciation method, compute the machine's first year depreciation expense.

3000 $10,000 - 2,000 = $8,000. $8,000 / 8000 units = $1.00 per unit. Year one 3,000 x $1.00 = $3,000.

During 20X7, a company purchased a building for $800,000 cash. During 20X7, the company made the following additional expenditures related to the building: ∙ It paid $600 cash for ordinary repairs. ∙ It paid $16,000 cash for extraordinary repairs. ∙ It paid $200,000 cash for an addition to the building. Assume all building-related journal entries were correctly made. Considering only the items specifically mentioned in this problem and ignoring depreciation, what amount would be included in the Building Account as of December 31, 20X7? a. $800,000 b. $816,000 c. $1,000,000 d. $1,016,000 e. $1,016,600

Balance in the Building Account: $800,000 + 16,000 + 200,000 = $1,016,000. d. $1,016,000 The Chapter 8 handout describes what is included in the cost of a tangible asset. You include the costs that are normal and necessary to get the asset ready for its intended use (i.e. the $800,000 purchase price) as well as any "capital expenditures" that increase the asset's capacity or extend the asset's useful life (e.g. the extraordinary repairs and the addition to the building.) When we debit the asset, we are "capitalizing" the cost. Ordinary repairs would not be included (but rather recorded as an expense in the current period.)

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

Balance sheet

__________ expenditures are additional costs of plant assets that provide benefits extending beyond the current period, such as a plant expansion, or major machine overhaul.

Capital

Which of the following transactions would not be classified as an operating activity on the statement of cash flows? Multiple choice question. Payments for goods and services Cash dividends paid to shareholders Cash paid for salaries and wages Collections on credit sales

Cash dividends paid to shareholders

On March 1, Young Co. borrowed $1,000 by extending their past-due account payable with a 120-day, 6% interest-bearing note. On June 29, the due date, Young pays the amount due in full. This entry would be recorded by Young with a credit to _____ in the amount of ______.

Cash; $1,020 Reason: Interest is computed for 120 days. $1,000 x .06 x (120/360) = $20. Cash will be credited for $1,000 + 20. Notes payable will be debited for $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? (Check all that apply.)

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

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? (Check all that apply.)

Debit to Equipment. Credit to Accounts Payable.

Zen Co. sells a copier machine for $2,000. The copier cost Zen $6,000 and at the time of sale, accumulated depreciation was $2,500. Zen will record this sale with which of the following entries?

Debit to Loss on Disposal of Machinery for $1,500: Reason: The loss is the difference between the book value of the machine and the selling price. Book value = $6,000-2,500=$3,500. $3,500-$2,000=$1,500 loss.

John Grey owns Grey's Snow Plowing. In October, he collects $12,000 cash for 6 commercial accounts for which he will provide snowplowing for the next three months. John recorded the cash collection as an unearned revenue. To record the adjusting entry in November, when $4,000 has been earned, Grey will enter which of the following entries? (Check all that apply.) Multiple select question.

Debit to Unearned Plowing Revenue Credit to Plowing Revenue Earned

____ is the process of allocating the cost of a plant asset to expense while it is in use.

Depreciation

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

Depreciation Expense - Equipment

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 _______ 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? (Check all that apply.)

Equipment Gain on Disposal of Equipment

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: Costs should not include repairs to damages or errors incurred after installation.

Book value is less than the selling price

Gain on sale of asset

Intangible assets that continue indefinitely into the future and are not amortized. The values of these assets are tested annually for ________.

Impairment

The cost at which a company records purchases of machinery and equipment should include which of the following? (Check all that apply.)

Installation Shipping fees Taxes Purchase price Testing (No operating costs)

______ are nonphysical assets used in operations that give companies long-term rights, or competitive advantages.

Intangible assets

Assets that increase the benefits of land, have a limited useful life, such as parking lots and lighting systems, are called:

Land improvements

Book value is greater than the selling price

Loss on sale of asset

Franco Co. reported net sales of $10,000 in year 2 and $8,000 in year 1. Franco reported total assets of $18,000 in year 2 and $22,000 in year 1. Total asset turnover for year 2 would equal (answer should be a decimal number). Hint: compute average total assets first.

Net Sales/ Avg Total Sales= 0.5

Book value is equal to the selling price

No gain or loss recognized

Bushra Co. replaced a $1,000 account payable balance to Elin Co. with a 120-day, $1,000 note bearing 8% annual interest. Bushra's entry to record this transaction would include a credit to which account?

Notes Payable

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

Patent

Instructions: Clearly indicate which accounts you are debiting and which accounts you are crediting. Each account title must be descriptive and complete, demonstrating your knowledge of the material we have covered in the course. If no entry is required, please write the word "None." On January 15, 20X1 the Lucky Tabby (LT) Corporation (which is a distributor of fancy cat climbing posts, called "trees") purchased 300 cat trees for $65 each. This is the only inventory purchase LT has ever made, and the purchase has already been recorded. Please DO NOT record the purchase again. On February 10, 20X1 LT sold 125 of the cat trees for $110 each. The sale was made on account. Ignore sales tax. Required: Provide BOTH (Hint: TWO) journal entries the Lucky Tabby Company is required to make to record the sale of the cat trees on February 10. DO NOT RECORD THE JANUARY 15 PURCHASE BECAUSE THAT WAS ALREADY RECORDED. Ignore taxes. Journal Entries (TWO!) made February 10, 20X1:

Question 20 Answer: On January 15, 20X1 the Lucky Tabby (LT) Corporation (which is a distributor of fancy cat climbing posts, called "trees") purchased 300 cat trees for $65 each. This is the only inventory purchase LT has ever made, and the purchase has already been recorded. Please DO NOT record the purchase again. On February 10, 20X1 LT sold 125 of the cat trees for $110 each. The sale was made on account. Ignore sales tax. Journal Entries (TWO!) made February 10, 20X1: This is similar to the February 10th entry from the Review Journal Entry assignment, and also similar to the Ch. 9 problem but without sales tax. Remember that Revenue and the A/R and/or Cash Received are based on PRICE. When Inventory was purchased, it was recorded at its COST, so we must remove it from the Inventory account and record COGS Expense based on the COST of the inventory. According to the Matching Principle, when we record the sale of "x" items, we must Match to that the cost of "x" items. Thus, both the Sales amount and the COGS amount are computed based on the same number, the # sold. A/R 125($110) 13,750 Sales Revenue 13,750 COGS Expense 125($65) 8,125 Inventory 8,125

Ordinary repairs, such as normal repairs and maintenance to a vehicle, would be recorded with a debit to which of the following accounts?

Repairs expense

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

Replacing an engine

Damen's Co. sells merchandise with a list price of $500 and collects sales tax of $50. The sales tax would be recorded with a credit to which account?

Sales Tax Payable

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

Trademark

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 sam

True: Reason: Declining-balance will always produce more depreciation expense in earlier years which will result in a lower book value

A company sells 12-month popular magazine subscriptions. During the month of May, the company sells $12,000 in magazines, which will start in June. The adjusting entry to record the $1,000 of subscriptions earned in June will include a debit to which account?

Unearned Subscription Revenue

A company sells 12-month subscriptions to popular magazines. During the month of May, the company sells $10,000 in magazines, which will start in June. The journal entry to record the sales not yet earned will include a credit to which account?

Unearned Subscription Revenue

Which one of the following statements is TRUE regarding the terminology related to a corporation's common stock? "#" means "number." a. # outstanding shares = # issued shares - # treasury shares b. # authorized shares = # issued shares + # treasury shares c. # issued shares = # authorized shares + # outstanding shares d. # outstanding shares = # authorized shares - # treasury shares e. # authorized shares is always less than # issued shares.

a. # outstanding shares = # issued shares - # treasury shares

Borrowed $10,000 9/1/X1, 6% 180 day note, 12/31 yr end. 120 days in X1; 60 days in 'X2. Int. exp. recorded on 2/28/X2? a. $100 b. $150 c. $200 d. $10,300

a. $100

Asset acquisition cost $125,000. Resid value $5,000. 5 year life. Double Declining Bal method. Year 1 depn exp=? a. $50,000 b. $48,000 c. $25,000 d. $24,000

a. $50,000

A company reported NI of $1,000, a $300 increase in A/R, and a $200 decrease in A/P. What is cash flow from operations? a. $500 b. $900 c. $1,100 d. $1,500

a. $500

. A company paid cash to purchase shares of stock of another company. How would the cash payment be classified in the Statement of Cash Flows? a. As an Investing activity b. As a Financing activity c. As an Operating activity d. It would not appear on the Statement of Cash Flows at all.

a. As an Investing activity

Pfizer Corp. spends $100,000 cash on research for a Covid vaccine. Which is TRUE? a. It debits Research and Development expense and does NOT record an asset. b. It debits an asset such as "Vaccine Patent." c. It debits the cash account. d. It would not make an entry at all.

a. It debits Research and Development expense and does NOT record an asset.

Which statement is FALSE regarding the sale of a tangible fixed asset? a. Recording the sale results in A/D decreasing assets b. A gain would be recorded with a credit. c. A loss is treated like an expense d. The first step isi to compute the book value of the sold asset

a. Recording the sale results in A/D decreasing assets

Which statement is FALSE about dividends? a. The stockholders receive cash on the date of record. b. Dividends reduce Retained Earnings. c. Dividends Payable is credited when dividends are declared.

a. The stockholders receive cash on the date of record.

A bond is issued with a contract rate of 4%. The market rate on the issue date is 5%. This bond is issued at a. a Discount b. a Premium c. Par (Face) Value

a. a Discount

Total asset turnover is computed by dividing net sales by ___ total assets.

average

Divs paid 1,240; Interest paid 440; Borrowing from bank 3,000; Cash flow from FINANCING = ? a. $1,320 b. $1,760 c. $3,000 d. $4,240

b. $1,760

Conover Company paid $28,600 cash to purchase a machine on January 1, 20X8. Other information related to the machine purchase is as follows: 1/2/X8: Paid $360 cash for freight (i.e. delivery) 1/5/X8: Paid $1,200 for installation costs Conover has a fiscal year end of December 31 and recorded depreciation for 20X8 and 20X9, using the straight-line method with an estimated useful life of 13 years and an estimated residual value of $3,340. What is the book value of the machine that would appear on the 12/31/20X9 (note the date!) Balance Sheet for Conover? Round to the nearest dollar amount if necessary. a. $24,714 b. $26,034 c. $26,274 d. $26,657 e. $28,600 f. $30,160

b. $26,034 Book Value 12/31/X9 = Cost $30,160 - A/D $4,126 = $26,034 Acquisition cost = $28,600 purchase price + $360 delivery cost + $1,200 installation cost The balance in the A/D account as of 12/31/X9 is 2,063 + 2,063 = $4,126

NI $1,000. Depn Exp $650. Proceeds from Equip Sale $300. Divs paid $100. Cash Flow from INVESTING equals what? a. $200 cash inflow. b. $300 cash inflow. c. $300 cash outflow. d. $350 cash outflow.

b. $300 cash inflow.

Plastic Works Corporation bought a machine on 1/1/20X3 at a cost of $15,000 and started using the machine immediately. The machine had an estimated useful life of five years and a residual value of $4,000. Assume that Plastic Works uses the Double Declining Balance Method to compute depreciation expense for this van. What depreciation expense would the company report for this van for its fiscal year ending December 31, 20X3? (Hint: 20X3 is the first year of ownership.) a. $7,500 b. $6,000 c. $5,500 d. $4,840 e. $3,000 f. $2,000

b. $6,000 The Chapter 8 handout covers the calculation of Double Declining Balance depreciation and points out the most common mistakes students make when working these problems. Straight-line rate = 1 / (Asset's estimated useful life) = 1/5 = .20 Double the straight-line rate = 2 x .2 = .4 DDB depreciation = Depreciation rate x beginning book value = .4 x ($15,000-0) = $6,000. Note that the rate is NOT multiplied by (15,000-4,000) because no depreciation had yet been recorded as of the beginning of the year.

Which depreciation method would lead to the lowest Net Income in the 1st year of an asset's life? a. Straight Line b. Double Declining Balance

b. Double Declining Balance

Sell equip. that cost $100,000. A/D on date of sale $20,000. Cash rec'd $50,000. Which is FALSE? a. Cash is debited for $50,000 b. Equipment is credited for $80,000 c. Loss is debited for $30,000 d. The Equip. book value is $80,000.

b. Equipment is credited for $80,000

Which one of these would NOT be capitalized (recorded with a debit to equipment)? a. Costs to build a base to hold new equipment. b. Janitorial costs incurred to clean equipment that's been used for a while. c. Fees to perform necesary tests of new equipment. d. Transportation charges to transport new equipment to where it will be used

b. Janitorial costs incurred to clean equipment that's been used for a while.

Which of the following is NOT a liability ? a. Unearned Revenue. b. Prepaid Expenses. c. Salaries payable. d. Interest payable.

b. Prepaid Expenses. An asset (e.g. prepaid insurance or prepaid rent) a. Unearned Revenue. A liability, also called deferred revenue c. Salaries payable. An accrued liability (p. 1) d. Interest payable. An accrued liability (p. 1)

E-Tech Initiatives Limited issued $500,000, 10-year, 4% bonds on January 1, 20X9 at 94. Interest is payable annually on December 31st . Which one of the following statements is false about this bond issue? a. The company received $470,000 cash when it issued the bond. b. The "Bond Payable" account will include $470,000. c. The bond was issued at a discount. d. Companies use bonds as debt financing

b. The "Bond Payable" account will include $470,000. This was covered in Chapter 10. 94 is the "Price" of the bond and is stated as a percentage of face (par) value. The face (par) value of the bond is $500,000. Investors will pay, and the company will receive, cash of 94% (500,000) = .94(500,000) = $470,000 The "Bond Payable" account will always include the face (par) value of the bond, which is why "b" is false in this question. The difference between the face (par) value and the cash received is either a premium (if the company receives more than the face value) or a discount (if the company receives less). The latter is the case for this problem. Here is the journal entry made by the company: Cash (+A) 470,000 Discount on Bond Payable (+xL, -L) 30,000 Bond Payable (+L) 500,000

The "Inventory" account increased by $100 during 20X2. a. The $100 would be added when computing Cash Flow from Operations. b. The $100 would be subtracted when computing Cash Flow from Operations. c. The $100 would not be used in the computation of Cash Flow from Operations.

b. The $100 would be subtracted when computing Cash Flow from Operations. The purchase and sale of inventory is an operating activity. In the Operations section of the Statement Cash Flows, we adjust net income in order to get cash flow from operations. As on page 8 of the Chapter 12 handout, the building up of inventory is "bad for cash" and leads to a subtraction in the Operating Section, Indirect Method.

What number appears at the BOTTOM of the Statement of Cash Flows? a. Cash generated by or paid for Financing Activities b. The Ending Balance in the Cash Account c. The Beginning Balance in the Cash Account d. Cash generated by or paid for Operating Activities

b. The Ending Balance in the Cash Account

When a company issues common stock and receives more than the par value per share, the common stock account will contain a. The amount of cash received. b. The par value of the issued stock. c. The amount received in excess of par.

b. The par value of the issued stock.

When a company reissues Treasury Stock (sells it back to shareholders) at a price higher than it paid, which is TRUE? a. A gain is recorded b. This has no effect on the company's income c. Revenue is recorded

b. This has no effect on the company's income

What happens when you revise an asset's useful life after you've been using it for 2 years? a. You made an error, so you go back and correct prior periods. b. You allocate the remaining cost over the asset's remaining life

b. You allocate the remaining cost over the asset's remaining life

A bond's face (par) value is $10,000. Bond price 105. How much cash will the company receive when it issues the bond? a. $500 b. $9,500 c. $10,500 d. $1,050,000

c. $10,500

A company purchases a machine on January 1, 20X7 for $60,000 and expects to use the asset for five years and then sell it for $5,000 after five years. It expects to produce 20,000 units of inventory with the machine, and actually does produce 3,000 units during 20X7 and 4,500 units during 20X8. It uses the "units of production" depreciation method. How much depreciation expense would the company record for 20X8 (the second year of use)? a. $8,250 b. $11,000 c. $12,375 d. $13,500 e. $20,625

c. $12,375 Please see the class example from the Chapter 8 handout. Cost per unit: (60,000 - 5,000) / 20,000 = $2.75 per unit $2.75 per unit x 4,500 units produced in 20X8 = $12,375

This information applies to the next two questions. RecRoom borrowed $18,000 from a bank on December 1, 20X7, and on 12/1 recorded an $18,000, six-month (180 day), 3% Note Payable. RecRoom will pay the principal and all interest on the note's maturity date, May 30 20X8. Assume that RecRoom made any required adjusting journal entry on December 31, 20X7. Hint: A timeline helps! Assume there are 360 days in a year. 12/1/X7 to 12/31/X7: 30 days. 1/1/X8 to 5/30/X8: 150 days. 30 + 150 = 180 days, life of the note. How much Interest Expense would RecRoom include for this Note Payable in its 20X8 Net Income? (20X8 is the year the note payable comes due.) a. $540 b. $270 c. $225 d. $45 e. $0

c. $225 Annual Interest expense = $18,000 x 3% = $540. 12/31/X7 Adjusting Journal Entry: Have incurred but not paid 30 days of interest $540 (30/360) = $45 Interest Expense $45 Interest Payable $45 Question 9: Interest expense for 20X8: Have incurred another 150 days of interest $540 (150/360) = $225 expense incurred during 20X8

Purch. Cost $125,000. Resid.Value $5,000. 5 yr life. Straight Line Method. Yr 1 depn exp? a. $20,000 b. $25,000 c. $24,000 d. $46,000

c. $24,000

Ahlers Clocks is a retailer of wall, mantle, and grandfather clocks. The company sold a grandfather clock for $6,300 cash plus 4% sales tax. The company had purchased the clock for $3,100 with cash. Assume all required related entries have been made. Ignoring other things not explicitly mentioned here, what is the total liability that exists for the company immediately after the clock sale? a. $0 (i.e. Ahlers Clocks has no liability after this sale.) b. $128 c. $252 d. $3,352 e. $3,452

c. $252 How does this all affect net income? Revenue 6,300 - expense 3,100. The sale tax does not affect net income at all. Cash 6,552 Sales Revenue 6,300 Sales Taxes Payable 252 COGS Expense 3,100 Inventory 3,100 The company collects cash for its product + the tax Based on PRICE charged to customer. The only liability in the problem, .04($6,300). The company collects this from the customer and immediately owes it to the government. Based on the COST the company incurred to buy the clock.

Taylor Swift has the exclusive right to reproduce and sell her music. This right is called a a. Patent b. Trademark c. Copyright d. Franchise

c. Copyright

Which statement best describes the presentation of depreciation expense in the operating activities section of the Statement of Cash Flows under the Indirect Method? Hints: The Indirect Method is what we covered in class and in the homework. Also, the ENTIRE statement must be true for the answer you choose, so read each possible answer carefully and completely. a. Neither depreciation expense nor accumulated depreciation appears. b. Depreciation expense is subtracted from net income because it represents cash spent. c. Depreciation expense is added to net income because it is a non-cash expense. d. The change in depreciation expense (i.e. this year minus last year) is added to net income because it is a non-cash expense.

c. Depreciation expense is added to net income because it is a non-cash expense. The Indirect Method starts with Net Income and then adjusts it to get cash flow from operations. Depreciation expense reduced Net Income but had no effect on cash flow. We add it back to Net Income, thus removing the effect of the non-cash subtraction.

Which statement is FALSE? ("CF" stands for "Cash Flow") a. Change in cash during the year = end cash balance - beg cash balance b. Beg cash balance + change in cash during the year = end cash balance c. End cash balance + change in cash during the year = beg cash balance d. Operating CF + Investing CF + Financing CF = change in cash during the year

c. End cash balance + change in cash during the year = beg cash balance

How would Treasury Stock be presented on the Balance Sheet? a. Asset Section, addition b. Liability Section, addition c. Equity Section, subtraction d. Equity Section, addition

c. Equity Section, subtraction

A company pays $300,000 cash for lighting and paving a parking lot. Cash is credited and what is debited? a. Land b. Building c. Land improvement d. Expense

c. Land improvement

Which one of the following would NOT be recorded with a debit to expense? a. Paid cash for tuneup on truck b. Paid cash for monthly salaries c. Paid cash for an addition to an old building d. Paid cash for an oil change for a truck

c. Paid cash for an addition to an old building

The "Common Stock" account increased by $100 during 20X2 because the company issued stock. a. The $100 would be added when computing Cash Flow from Operations. b. The $100 would be subtracted when computing Cash Flow from Operations. c. The $100 would not be used in the computation of Cash Flow from Operations.

c. The $100 would not be used in the computation of Cash Flow from Operations. The common stock account increases when stock is issued. The entry would look like this: Cash (+A) xxx Common Stock (+Equity) xxx Paid-in Capital in Excess of Par (+Equity) xxx (In Chapter 11, we learned that the "Common Stock" account only includes the par value of the stock, and the "Paid-in Capital in Excess of Par" account includes the difference between the cash received and par value.) The cash received from issuing stock is a financing activity and, thus, would not appear in the operating section.

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

copyright

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

cost

Which is the correct equation to compute # of shares outstanding? a. #Shares authorized + #shares issued b. #Shares authorized - #shares issued c. #Shares issued + #shares of treasury stock d. #Shares issued - #shares of treasury stock

d. #Shares issued - #shares of treasury stock

We sell a product for $6,300 plus 4% sales tax. Cost of product $3,100. Effect of this on net income equals? a. $6,552 b. $6,300 c. $3,452 d. $3,200

d. $3,200

A company purchased a machine for $70,000 on January 1, 20X1, and after using it (and recording depreciation expense on it) for two years, decided to sell the machine. The company received cash proceeds of $20,000. The accumulated depreciation on the machine on the 12/31/20X2 date of sale was $52,500. Which one of the following statements is true regarding the journal entry that would be made on 12/31/X2 to record the sale? a. A loss of $50,000 would be recorded. b. The "Accumulated Depreciation" account would be credited. c. The "Equipment" account would be debited. d. A gain would be credited. e. None of these are true. a, b, c, and d are ALL FALSE.

d. A gain would be credited. Step 1: Book value of asset on date of sale Cost $70,000 - A/D $52,500 = $17,500 Step 2: Compute Gain or Loss = Proceeds $20,000 - Book Value $17,500 = $2,500 gain Step 3: Journal Entry (Required for this problem) Cash (+A) 20,000 A/D (-xA, +A) 52,500 Equipment (-A) 70,000 Gain (+Equity) 2,500 Treat gains like revenue Note that this is NOT the answer: Cash (+A) 20,000 Equipment (-A) 17,500: Equip is NOT credited for book value Gain (+ Equity) 2,500 This is a common mistake students make. The equipment account contains $70,000 and must be cleared entirely when the equipment is sold. And the A/D must also be cleared. ("Equipment and A/D are best friends. They hang out on the Balance Sheet together, and if Equip. leaves, A/D goes with it.") Note also that this is NOT the sale of inventory. Inventory is what we purchase or manufacture and put on our shelves to sell to customers. We do not use inventory ourselves. Above, we are recording the sale of equipment that we have used ourselves.

Describe the presentation of depreciation in the operating section of the Statement of Cash Flows, Indirect Method a. Neither depreciation expense nor accumulated depreciation appears. b. Depn exp is subtracted from net income because it represents cash spent c. The CHANGE in the depn exp is added to NI because it is a non-cash expense d. Depn expense is added to net income because it is a non-cash expense

d. Depn expense is added to net income because it is a non-cash expense

Which is true about financial accounting depreciation for the 3rd year of the asset's life? a. The depn. entry reduces the asset account (equip or bldg) account directly. b. The balance of the Depn. Expense account shows the depn. taken to date c. Depn. expense is a contra-asset shown on the company's Balance. Sheet. d. It matches the cost of using the asset to the revenue of the same period

d. It matches the cost of using the asset to the revenue of the same period

If a company acquires a patent from another company, which is TRUE about when it uses the patent? a. It records depreciation b. It never makes an adjusting entry c. It records amortization if the assest has an unlimited life d. It records amortization if the asset has a limited life.

d. It records amortization if the asset has a limited life.

What is the first number that appears at the top of the Operating Section, Indirect Method? a. Cash Collected from Customers b. Depreciation Expense c. Cash paid for Interest d. Net Income

d. Net Income

Plant assets are recorded at cost, which includes all expenditures necessary to get the asset in place and ready for use. All of the following would be included as part of the cost of a plant asset except:

damage done when unpacking the plant asset

On December 1, Hansen Co. borrowed $100,000 cash from National Bank by signing a 90-day, 6% interest-bearing note. On December 31, Hansen recorded an adjusting entry to record interest expense of $500. On March 1, the due date of the note, Hansen will record interest expense as a (debit/credit) ________ in the amount of ______.

debit; $1,000 Reason: 90 day note. 30 days of interest was recorded at December 31. 60 days of interest is recorded on 3/1. $100,000 x .06 x (60/360) = $1,000. Debit interest expense for $1,000.

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

depletion expense

For which of the following assets would a company NOT need to record either depreciation expense or amortization expense? (Read ALL choices and Circle the ONE BEST answer of those provided.) a. Land b. Trademark c. Patent d. Licencing rights e. Land AND a Trademark

e. Land AND a Trademark Please make sure you read all questions carefully and completely. a. Land -Infinite useful life so not depreciated b. Trademark - Trademarks can be renewed every 10 years, so they effectively have an infinite useful life and are not amortized. c. Patent: Amortized over the shorter of the Patent's useful life or 20 years d. Licencing rights- Amortize over expected useful life

15. Which one of the following statements is FALSE regarding a company's Treasury Stock? a. Treasury stock is reported at the cost the company incurred to acquire it. b. Treasury stock is often acquired so that the company can have shares of stock to distribute to employees. c. When a company purchases treasury stock, it reduces the number of shares it has outstanding. d. When a company purchases treasury stock, it has no effect on the number of issued shares. e. When a company holds treasury stock, it reports the treasury stock in the asset section of its Balance Sheet.

e. When a company holds treasury stock, it reports the treasury stock in the asset section of its Balance Sheet. Treasury stock is reported in the equity section as a subtraction, i.e. a "contra equity."

Which of the following statements is (are) TRUE? a. Depreciation is the allocation of the cost of a tangible (fixed) asset. b. Financial accounting depreciation is not calculated to measure the change in market value of the corresponding asset. c. Consider two identical pieces of equipment, both purchased at the same time at the same cost, used the same way, and sold at the same time for the same amount. If the company uses different depreciation methods for the two assets, there could be a gain on the sale of one asset and a loss on the sale of the other. d. All else held equal, an accelerated depreciation method would lead to lower reported net income than would the straight-line method in the first year of a tangible asset's useful life. e. a, b, c and d are ALL TRUE.

e. a, b, c and d are ALL TRUE a. Depreciation is the allocation of the cost of a tangible (fixed) asset. True. Please see the definition from the Ch. 8 handout. b. Financial accounting depreciation is not calculated to measure the change in market value of the corresponding asset. True. When we compute depreciation expense, we compute the cost to us of using the asset and allocate that cost. We never refer to the current market value of the asset when doing the calculation. c. Consider two identical pieces of equipment, both purchased at the same time at the same cost, used the same way, and sold at the same time for the same amount. If the company uses different depreciation methods for the two assets, there could be a gain on the sale of one asset and a loss on the sale of the other. True. This is stated and demonstrated in the Chapter 8 handout on p. 15. Different depreciation methods lead to different A/D balances and thus different book values. Since the Gain/Loss = Cash Proceeds - Book Value, different book values will lead to a different Gain or Loss. d. All else held equal, an accelerated depreciation method would lead to lower reported net income than would the straight-line method in the first year of a tangible asset's useful life. True. In the Chapter 8 handout, please compare the first year straight-line depreciation expense on page 6 with the first year DDB depreciation expense on page 8. (DDB is an accelerated method; an accelerated method records more depreciation expense in the early years and less in the later years.) The DDB depreciation expense is higher which would lead to lower reported income. Also, please re-read the discussion on comparing depreciation methods in the Chapter 8 handout.

Which of the following statements is (are) true regarding the combined journal entry RecRoom would make on May 30, 20X8, the note's maturity date, to record the payment of principal and interest? a. Cash would be credited for $18,270. b. The Note Payable account would be debited for $18,000. c. The Interest Expense account would be debited. d. The Interest Payable account would be debited. e. a, b, c, and d are ALL TRUE.

e. a, b, c, and d are ALL TRUE. Cash paid for interest on 5/30/X8: 180 days of interest $540 (180/360) = $270 You combine these entries for this question, putting the debits on top and crediting cash for a total of $18,270. Notes Payable 18,000 Interest expense 225 Interest payable 45 Cash. 18270 Principal only 150 days, incurred this period 30 days, clearing payable from 12/31 Cash interest for 180 days + Principal. Cash interest for 180 days + Principal

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 of $1,000 Cash received is $1,000. Book value of equipment is 0, so there will be a gain of $1,000.

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

goodwill

_____ is measured as the excess of the cost of an acquired entity over the value of the individual assets and liabilities.

goodwill

On January 1, 20X3, a company purchased a building for $300,000. It expects the building to last 30 years, and it uses the straight-line method of computing depreciation with no estimated residual value. Which of the following statements is (are) true regarding financial reporting for this building for the fiscal year ending December 31, 20X4, i.e. the end of the SECOND year of ownership of the building? a. The "Building" account will have a balance of $280,000. b. 20X4 Depreciation Expense will be $10,000. c. The balance in the Accumulated Depreciation account on 12/31/X4 will be $10,000 d. a, b, and c are ALL true.

✓ b. 20X4 Depreciation Expense will be $10,000 a. The "Building" account will have a balance of $280,000. False. $300,000 c. The balance in the Accumulated Depreciation account on 12/31/X4 will be $10,000 False. $20,000 because $10,000 was entered into the account on 12/31/X3 and another $10,000 was entered on 12/31/X4 for a total of $20,000. d. a, b, and c are ALL true. This question covers important concepts, such as the difference between an entry (that records depreciation expense for the current period only, $300,000/30=$10,000 per period) and the balance in a balance sheet account (the A/D account shows the depreciation recorded to date.) 12/31/X3: Depreciation Expense 10,000 Accum. Depn. 10,000 12/31/X4: Depreciation Expense 10,000 Accum. Depn. 10,000 On the 12/31/X4 Balance Sheet: Building 300,000 - A/D (20,000) Book Value 280,000 Also called "Building, net"