Accounting test 3

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase?

$180,000. 9,00,000*200,000 / 1,000,000

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account?

$2,000.

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much is the estimated warranty liability reported in the balance sheet this year?

$25,000.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest payable for the year ended December 31, 2021?

$1.5 million.

If Speedy Travel, Inc. borrows $50 million on September 1 for one year at 9% interest, how much interest expense should it record by December 31 of that same year?

$1.5 million.

Express Jet borrows $100 million on October 1, 2021, for one year at 6% interest. For what amount does Express Jet report interest expense for the year ended December 31, 2022?

$4.5 million.

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as:

A debit to an asset and a credit to a liability account.

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record:

A loss of $10,000.

Which of the following expenditures should be capitalized?

An improvement to a tangible asset.

Which of the following is not a current liability?

An unused line of credit.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Western's legal counsel believes it is probable that Western will have to pay an estimated amount in the range of $75,000 to $175,000, with all amounts in the range considered equally likely. How should Western report this litigation?

As a liability for $75,000 with disclosure of the range.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record?

Debit Cash, $5,000; Credit Notes Payable, $5,000.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record?

Debit Notes Receivable, $5,000; Credit Cash, $5,000.

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1:

Debit interest expense and credit interest payable, $4,000.

Which of the following is not an advantage of debt financing?

Debt financing often has no maturity date.

A contingent liability that is probable and can be reasonably estimated must be

Recorded.

Which of the following expenditures should be recorded as an expense?

Repairs and maintenance that maintain current benefits.

Which of the following is not recorded as an intangible asset in the balance sheet?

Research and development.

Which of the following will result in higher depreciation expense in the first year of the asset's life?

Short service life and low residual value.

Research and development costs

Should be expensed.

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. For the first month's payment, what is the amount to record for interest expense?

$129.

Equipment was purchased for $50,000. The equipment is expected to be used 15,000 hours over its useful life and then have a residual value of $10,000. In the first two years of operation, the equipment was used 2,700 hours and 3,300 hours, respectively. What is the equipment's accumulated depreciation at the end of the second year using the activity-based method?

$16,000.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month?

$2,542.

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the second month?

$2,555.

A company purchased new equipment for $31,000 with a two-year installment note requiring 5% interest. The required monthly payment is $1,360. After the first month's payment, what is the balance of the note?

$29,769.

Aviation Systems sells its products with a three-year manufacturing warranty. The company's sales revenue is $600,000. Based on prior experience, the company estimates that warranty costs are 5% of sales revenue. Actual warranty costs related to these sales were $5,000 during the year. How much warranty expense should the company record this year?

$30,000.

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1?

$450,000

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as interest expense in the second month?

$487.

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year?

$60,000.

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase?

$700,000.

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year?

$8,000.

Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month?

500

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. What is the amount of interest expense to report in 20X2?

8,000

Accumulated depreciation is:

A contra-asset.

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as:

A debit to a liability and a credit to a revenue account.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record

A loss of $10,000.

Which of the following is properly recorded as an intangible asset?

A purchased patent.

Which of the following is not a primary source of long-term debt financing?

Accounts payable.

If equipment is retired, which of the following accounts would be debited?

Accumulated depreciation.

Over the entire service life of an asset, which depreciation method records the highest total depreciation?

All the methods result in the same total depreciation.

Depreciation in accounting is the:

Allocation of an asset's cost to an expense over time.

Allied Partners filed suit against Big Sky, Inc., seeking damages for patent infringement. Big Sky's legal counsel believes it is probable that Big Sky will settle the lawsuit for an estimated amount in the range of $500,000 to $700,000, with all amounts in the range considered equally likely. How should Big Sky report this litigation?

As a liability for $500,000 with disclosure of the range.

The book value of an asset is equal to the

Asset's cost less accumulated depreciation.

The asset's cost less accumulated depreciation is called:

Book value.

We normally record a long-term asset at the

Cost of the asset plus all costs necessary to get the asset ready for use.

A long-term asset is recorded at the:

Cost of the asset plus all costs necessary to the asset ready for use.

Which of the following is reported as a current liability?

Current portion of long-term debt.

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck's residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation?

Depreciation per mile = ( Cost of Truck- Residual value)/ Estimated use = ( 60,000-10,000)/100,000 = 50,000/100,000 = $0.5 Miles driven in first year = 16,000 Depreciation expense for first year = Miles driven in first year x Depreciation per mile = 16,000 x 0.5 = $8,000

Which of the following correctly describes the nature of depreciation?

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life?

Double declining balance method.

The city of Summerton has a sales tax rate of 8%. A local convenience store sells merchandise, and the customer pays a total of $38.34. What effect does this transaction have on total liabilities?

Increase of $2.84.

Which of the following expenditures should be recorded as an asset?

Interest costs during the construction period of a new building.

Which of the following is not a characteristic of a liability?

It must be payable in cash.

A company's capital structure refers to:

Its mixture of liabilities and stockholders' equity.

Which of the following typically represents an advantage of leasing over purchasing an asset with an installment note?

Lease payments often are lower than installment payments. Leasing generally requires less cash upfront. Leasing typically offers greater flexibility and lower costs in disposing of an asset.

An advantage of leasing an asset rather than purchasing the asset is:

Leases typically require less cash upfront to begin using the asset.

Which of the following statements regarding liabilities is true?

Liabilities represent probable future sacrifices of benefits.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation?

No asset or gain is reported.

Which of the following expenditures should be recorded as an expense?

Ordinary repairs and maintenance.

An exclusive 20-year right to manufacture a product or to use a process is a:

Patent

Which of the following is not a primary source of corporate debt financing?

Receivables.

The seller collects sales taxes from the customer at the time of sale and reports the sales taxes as

Sales tax payable.

The balance in the Accumulated Depreciation account represents

The amount charged to depreciation expense since the acquisition of the plant asset.

In each succeeding payment on an installment note:

The amount that goes to interest expense decreases.

Interest expense is recorded in the period in which:

The interest is incurred.

We record interest expense on a note payable in the period in which

We incur interest.

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now.

one; one

A company needs construction equipment to complete a project over the next 20 months. The equipment costs $10,000. Instead of purchasing the equipment with a 12% note, the company leases the equipment with payments of $300 due at the end of each month. For what amount would the company record the lease liability at the beginning of the lease?

$5,414.

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain?

0

Pizza Shop sells toaster ovens with a one-year warranty to fix any defects. For the current year, 100 toaster ovens have been sold. By the end of the year 4 ovens have been fixed for an average of $80 each. Management estimates that 5 more of the 100 sold will need to be fixed next year for an estimated $80 each. For how much should Pizza Shop report warranty liability at the end of the current year?

400

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record:

A gain of $5,000.

Which of the following represents a characteristic of a liability?

A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events

Which of the following expenditures should be recorded as an asset?

An addition which increases future benefit.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be:

Disclosed but not reported as a liability.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be

Disclosed but not reported as a liability.

Which of the following statements regarding liabilities is not true?

Liabilities result from future transactions.

Which of the following will maximize net income by minimizing depreciation expense in the first year of the asset's life?

Long service life, high residual value, and straight-line depreciation.

Current liabilities

May include contingent liabilities.

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would:

Record a lease asset. Record a lease liability. Record a lease for the present value of the 24 lease payments.

The amount of the gain on the sale of equipment equals:

The selling price minus the book value of the equipment.