Accounting Test 5

On January 1, Year 1, Squid Roe, Inc., purchased equipment for $25,000 and depreciated the equipment using straight-line and an estimated useful life of 5 years and $0 salvage value. On January 1, Year 4, Squid Roe, Inc., sold the equipment for $11,000 cash. The journal entry to record the sale of this equipment includes a ______. (Select all that apply.)

credit to Gain for $1,000 debit to Accumulated Depreciation for $15,000 debit to Cash for $11,000 credit to Equipment for $25,000

Daffy Duct, Inc., sold some office furniture for $4,300 cash. The furniture cost $31,000 and had accumulated depreciation through the date of sale totaling $28,500. The journal entry to record the sale of the furniture will include a ______.

credit to Gain on Sale of Equipment for $1,800

On January 1, Year 1, Twisted Pretzel, Inc., purchased equipment for $25,000 with an estimated useful life of 5 years and $0 salvage value. On January 1, Year 4, Twisted Pretzel, sold the equipment for $9,000 cash. The journal entry to record the sale of this equipment includes ______. (Select all that apply.)

debit to Cash for $9,000 debit to Accumulated Depreciation for $15,000 credit to Equipment for $25,000 debit to Loss for $1,000

During the year, Cycloanalysts, Inc., spent $1,000,000 on research and development (R&D) and capitalized the entire amount, intending to write it off over 5 years. This accounting treatment is ______.

incorrect. The company should treat the entire amount as an expense

During the year, Reid & Wright Learning Center, Inc., spent $500,000 on training and capitalized the entire amount, intending to write it off over 5 years. This accounting treatment is ______.

incorrect. The company should treat the entire amount as an expense during the year

Planet of the Grapes, Inc., purchases an $80,000 truck with an estimated useful life of 5 years and no salvage value. Which of the following statements is TRUE regarding this truck?

The purchase of the truck is a capital expenditure.

On January 1, Year 1, Beauty & the Bistro, Inc., purchased a $160,000 machine with an estimated useful life of 10 years or 500,000 units and a $10,000 salvage value. The machine actually produced 150,000 units in Year 1 and 120,000 units in Year 2. Record the depreciation adjusting entry for Year 1 using the activity method:

(160000-10000)/500000= .30 .30x 150000 units year 1= 45000

Ditchits, Inc., sold its equipment for $3,000 that cost $600,000 and had accumulated depreciation equal to $594,000 at the time of the sale. Calculate the gain or loss on the sale of this equipment.

-3000

Stumped, Inc., purchased the timber rights for $7,000,000. It is expected to produce a total of 5,000,000 cords of wood over 4 years, after which it will be sold for $1,000,000. What is the depletion rate per cord of wood?

1.2

Squid Roe, Inc., sold its $19,000 equipment with accumulated depreciation of $13,000 for $7,000. What is the amount of the gain or loss on this sale Squid Roe would record? DO NOT INCLUDE $ IN YOUR ANSWER.

1000

Florist Gump, Inc., purchased a truck on January 1, Year 1, at a cost of $117,000. The truck has an estimated useful life of 5 years or 102,000 miles. The estimated salvage value is $15,000. In Year 1, the truck was driven 16,000 miles. In Year 2, the truck was driven 21,000 miles. Accumulated Depreciation using straight-line depreciation at December 31, Year 2, after two years of use, equals (rounded to the nearest dollar) ______.

117000-15000= 102000 102000/5= 20400 20400*2= 40800

Many Happy Returns, Inc., purchased a new computer system and paid the following: Computer system $100,000 Delivery costs of the computer system 12,000 Installation costs of the computer system 14,000 Increase in the annual insurance premiums 1,000

126,000

Lumpsum, Inc., purchased land and two buildings at a total cost of $40,000. The appraised value for each item is as follows:

16000

On January 1, Year 1, Brewed Awakenings, Inc., paid $83,000 cash for espresso machines with an estimated useful life of 4 years and $12,000 salvage value. What is Depreciation Expense for Year 1 if the straight-line method is used?

17750 (cost-salvage value)/ Useful life

Drain Surgeons Corporation purchased equipment for $45,000. Drain Surgeons also paid $1,400 for freight and insurance while the equipment was in transit. Sales tax amounted to $750. Insurance, taxes and maintenance for the first year of use was $1,500. How much should Drain Surgeons Corporation capitalize as the cost of the equipment?

47150

Stumped, Inc., purchased the timber rights for $7,000,000. It is expected to produce a total of 1,000,000 cords of wood over 4 years, after which it will be sold for $2,000,000. What is the depletion rate per cord of wood?

5.00

Whittle, Inc., purchased the timber rights for $5,000,000 at the beginning of Year 1. It is expected to produce a total of 2,000,000 cords of wood over 4 years, after which it will be sold for $1,000,000. In Year 1, it cut 380,000 cords of wood. How much Depletion Expense should be recorded in Year 1 using the activity method?

760000

Which of the following items is reported on the balance sheet?f

Accumulated Depreciation

Why is Accumulated Depreciation on the balance sheet more than Depreciation Expense on the income statement in the subsequent years of an asset's useful life?

Accumulated Depreciation accumulates and reports all of the asset's usefulness used since the asset was purchased.

On January, Year 1, a $100,000 truck was purchased for cash and then depreciated using straight-line and assuming a 5-year life and $10,000 salvage value. The purchase of the truck appears under A.___________ activities on the Statement of Cash Flows in the amount of B. $______________ for Year 1.

Activity: Investing Amount: (100,000)

During the year, Sure Lock Loans, Inc. recorded $90,000 for the CEO's salary as a capital expenditure. Determine the effect of this entry on the accounting equation.

Assets Liabilities Shareholders'Equity Overstated No Effect Overstated

During the year, Morris Lest, Inc. recorded $120,000 for the CEO's salary as a capital expenditure. Determine the effect of this entry on the accounting equation.

Assets and Shareholders' Equity are overstated, but Liabilities are not affected.

A $100,000 truck was depreciated using straight-line and assuming a 5-year life and $10,000 salvage value. After 3 years, it was sold for $40,000 cash.

Assets: Debit Cash 40,000; Debit Accumulated Depreciation 54,000; Credit Equipment 100,000 Liabilities: No effect Shareholders Equity: Debit Loss 6,000

During the year, Clean Dirt, Inc., recorded $80,000 for the CEO's salary as a capital expenditure. Determine whether this is the appropriate accounting treatment by showing the effect of this accounting treatment on the accounting equation.

Assets: Too high Liabilities: correct SE: Too high

On January 1, Year 1, MachX, Inc., paid $90,000 cash for a machine with an estimated useful life of 5 years and a $10,000 salvage value. In December Year 2, the company decided that the machine's original estimated useful life of 5 years should be revised to a total of only 3 years (i.e., a remaining life of 2 years) with a $0 salvage value. Show the effect of the depreciation adjusting entry for Year 2 using straight-line deprecation given this change in estimate.

Before the revision, straight-line depreciation recorded in Year 1 was $16,000 (=($90,000-10,000)/5). In Year 2, the net book value of the equipment is $74,000 (=$90,000-16,000). The revised depreciation is the net book value divided by the remaining years or $74,000/2 remaining years or $37,000.

What is book value (or net book value) of plant and equipment and on which financial statement is it reported?

Book value is the difference between historical cost and Accumulated Depreciation, and it is reported on the balance sheet.

$5,000 to have its new equipment delivered to its factory $3,000 to have the equipment installed $1,000 for the electricity during the year to run its equipment

Capital Expenditure (asset) Capital Expenditure (asset) Expense

Sofa So Good, Inc., purchased 100 shares of Staco Bell's common stock for $8 each on May 1. On December 31, Sofa So Good received a dividend check for $10. Record the receipt of dividends below.

Cash 10 Dividend income 10

On November 30, Sure Lock Loans, Inc., purchased eight of Buy & Large, Inc.'s, $1,000 par value, 9% bonds for $8,000, interest is paid monthly. On December 31, Sure Lock Loans received interest income of $60 from Buy & Large. Record the journal entry for the receipt of interest.

Cash 60 Interest Income 60

Given the two companies' income statements below, which company appears to be the better company to invest in and why?

Company 1, because it is more likely to have higher future earnings.

Which of the following should be classified on the balance sheet as a long-term intangible asset and amortized over its useful life?

Copyright

Stumped, Inc., purchased the timber rights for $5,000,000. It is expected to produce a total of 2,000,000 cords of wood over 4 years, after which it will be sold for $1,000,000. What is the depletion rate per cord of wood?

Depreciation (Depletion) Rate per unit = (Cost - Salvage Value) / Estimated Total Units. 2.00

Which statement about depreciation is true?

Depreciation refers to an allocation of an asset's cost to an expense account.

$1,000 for the maintenance of its equipment $20,000 to advertise its new, improved production process given its investment in new equipment $100,000 to replace the buildings roof

Expense Expense Capital Expenditure (Asset)

$20,000 for research and development costs $5,000 for the delivery of new machines $30,000 for repairs to its older equipment

Expense Capital Expenditure Expense

$100,000 for advertisements run during the year $30,000 for the training of its employees during the year $5,000 sales tax on purchase of equipment

Expense Expense Capital Expenditures

Which of the following is NOT an intangible asset?

Human Resources

Q 20. On August 1, Par for the Course, Inc., lent $10,000 on a 6-month, 6% note with interest and principal due on February 1. Record the adjusting entry for interest earned for the year ended December 31.

Interest Receivable 250 Interest Income 250

QUESTION 20 On October 1, Deja Brew, Inc., lent $900 on a 9-month, 12% note with interest and principal due on July 1. Record the adjusting entry for interest earned for the year ended December 31.

Interest Receivable 27 Interest Income 27

On November 1, Pastibilities, Inc., lent $900 on a 9-month, 6% note with interest and principal due on August 1. Record the adjusting entry for interest earned for the year ended December 31.

Interest Receivable 9 Interest Income 9

Classify each of the items below according to the section of a firm's financial statements in which it would be reported. Some sections may be used more than once. Some may not be used at all. Current Assets Current Liabilities Revenues Long-term Assets Long-term Liabilities Expenses Common Stock

Land: Accounts Payable: Inventory: Equipment:

On November 30, Optimeyes, Inc., purchased 100 shares of Haira Noia's common stock for $10 each. Based on stock market information, at December 31, year end, Haira Noia's shares were trading for $11 each. Match the amount and on which financial statement each of the line items would be reported on the December 31 financial statements given this information.

Marketable Securities $1,100; Balance Sheet Unrealized Gain (Loss) $100; Income Statement Purchase of Marketable Securities $(1,000); Investing Activities on the Statement of Cash Flows

On May 1, Chain Reaction Bike Shop purchased 100 shares of Staco Bell's common stock for $8 each. Record the purchase of Marketable Securities below.

Marketable Securities Cash

On November 30, Bags Bunny, Inc., purchased 100 shares of Novel Tea's common stock for $40 each. On December 31, Bags Bunny received a dividend check for $50 (which was $0.50 per share). Based on stock market information, at December 31, year end, Novel Tea's shares trading for $42 each. Match the amount and on which financial statement each of the line items would be reported on the December 31 financial statements given these events.

Marketable Securities $50; Income Statement Dividend Income $4,000; Balance Sheet Unrealized Gain $(200); Income Statement Purchase of Marketable Securities $50; Balance Sheet

On May 1, Sofa So Good, Inc., purchased 100 shares of Staco Bell's common stock for $8 each. At December 31, year end, the stock was trading for $9 each. Record the adjusting entry based on this stock information. If no adjusting entry is required, type in 0 in the boxes below.

Marketable Securities 100 Unrealized Gain 100

Sonny Daiz, the bookkeeper, increased the equipment account for ordinary repairs incurred during the month. Which of the following is TRUE?

Net income will be overstated.

On November 1, BBQ's Tanning Beds, Inc., lent $900 on a 6-month, 6% note with interest and principal due on May 1. Record the issuance of the note below.

Notes Receivable 900 Cash 900

Which statement best describes the proper accounting treatment for long-term assets classified as Plant and Equipment?

Record them as assets and then depreciate them over an estimated useful life.

During the year, Rob M. Clean Company recorded $400 of delivery costs for its new machine as an expense. Determine whether this is the appropriate accounting treatment by showing the effect of this accounting treatment on the accounting equation.

Too Low Correct Too Low

Miss Happ, the accountant for Twisted Pretzel, Inc., forgot to make the adjusting entry for depreciation on the company's equipment. As a result of this mistake, which of the following is misstated?

Total assets are too high. Shareholders Equity is too high.

A loss is ______.

a reduction in income recorded with a debit