acct 2121 Exam 3

The balance sheet of Flo's Restaurant showed total assets of $320,000, liabilities of $88,000 and stockholders' equity of $232,000. An appraiser estimated the fair value of the restaurant assets at $365,000. If Alice Company pays $425,000 cash for the restaurant the amount of goodwill acquired would be: $143,000. $148,000. $105,000. $60,000.

$148,000. General Feedback Goodwill is equaled to the amount a buyer is willing to pay over fair market value for a company. In this instance, fair market value of the assets is equaled to $365,000 - the liabilities of $88,000 = $277,000. Goodwill is therefore equaled to the purchase price of $425,000 - $277,000

Dinkins Company purchased a truck that cost $60,000. The company expected to drive the truck 100,000 miles over its 5-year useful life, and the truck had an estimated salvage value of $9,000. If the truck is driven 30,000 miles in the current accounting period, what would be the amount of depreciation expense for the year using the units-of-production method? Note: Do not round intermediate calculations. $24,000. $15,300. $10,200. $18,000.

$15,300. Feedback General Feedback Units of Production: ($60,000 (Purchase Price) - $9,000 (Salvage Value)) / 100,000 miles = $0.51/ mile 30,000 x $0.51 = $15,300

On January 1, Year 1, Stiller Company paid $80,000 to obtain a patent. Stiller expected to use the patent for 5 years before it became technologically obsolete. The remaining legal life of the patent was 8 years. Based on this information, the amount of amortization expense on the December 31, Year 3 income statement and the book value of the patent on the December 31, Year 3, balance sheet, respectively, would be: $16,000 and $48,000. $16,000 and $32,000. $10,000 and $50,000. $10,000 and $30,0

$16,000 and $32,000. General Feedback Even though the remaining life is 8 years, the technology will be obsolete in 5, therefore we use that as the remaining life. $80,000 (Purchase Price) / 5 year remaining life = $16,000 amortization per year To find Book Value: $16,000 x 3 = $48,000 Book Value = $80,000 (Purchase Price) - $48,000 (Amortization) = $32,000

On January 1, Year 1, Marino Moving Company paid $124,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $46,000 salvage value. If Marino uses the straight-line method, the amount of depreciation expense recognized on the Year 2 income statement is: $62,000. $39,000. $31,000. $19,500.

$19,500. General Feedback Straight line depreciation: ($124,000 (Purchase Price) - $46,000 (Salvage Value)) / 4 year life = $19,500/ year

On January 1, Year 2, Ballard Company spent $12,000 on an asset to improve its quality. The asset had been purchased on January 1, Year 1, for $52,000. The asset had a $4,000 salvage value and a 6-year life. Ballard uses straight-line depreciation. What would be the book value of the asset on January 1, Year 5? $24,800 $10,400 $20,800 $24,000

$24,800 General Feedback Improving the quality of the asset is a capitalized expense and therefore changes the value of the asset. Since this improvement happened in Year 2, we first need to find the book value of the asset: Year 1 Depreciation: ($52,000 (Purchase Price) - $4,000 (Salvage Value)) / 6 year life = $8,000 Book Value = $52,000 (Purchase Price) - $8,000 (Accumulated Depreciation) = $44,000 Now, we capitalize the expense and revise the deprecation expense: ($44,000 (Book Value) + $12,000 (Capitalized Expense) - ($4,000 Salvage Value)) / 5 years remaining life = $10,400 / year Three years have then passed since the improvement, therefore we multiply the $10,400 by 3 to get $31,200. We then have to add the $8,000 from Year 1 to get total Accumulated Deprecation of $39,200 To find the Book Value: $64,000 (Purchase Price + Improvement) - $39,200 (Accumulated Deprecation) = $24,800

Harding Corporation acquired real estate that contained land, building and equipment. The property cost Harding $1,045,000. Harding paid $210,000 and issued a note payable for the remainder of the cost. An appraisal of the property reported the following values: Land, $220,000; Building, $950,000 and Equipment, $730,000. What value will be recorded for the building? $105,000 $385,000 $522,500 $950,000

$522,500 General Feedback Since this is a basket purchase, we have to allocate the purchase price between all of the components using the fair market value method. Per the appraisal, the land was worth $220,000, building was worth $950,000 and the equipment was worth $730,000 for a total value of $1,900,000. The building made up 50% of the fair value ($950,000/$1,900,000) therefore we would allocate half of the purchase price of $1,045,000 to the building.

Darden Company has cash of $32,000, accounts receivable of $42,000, inventory of $22,000, and equipment of $62,000. Assuming current liabilities of $30,000, this company's working capital is: $12,000. $66,000. $96,000. $44,000.

$66,000. Working Capital = Current Assets - Current Liabilities Current Assets (Cash, Accounts Receivable, Inventory) - Current Liabilities

On January 1, Year 1, Marino Moving Company paid $108,000 cash to purchase a truck. The truck was expected to have a four-year useful life and a $38,000 salvage value. If Marino uses the straight-line method, the amount of book value shown on the Year 2 balance sheet is: $90,500. $73,000. $52,500. $35,000.

$73,000. General Feedback Book Value = Asset on Balance Sheet (at historical cost) - Accumulated Depreciation As we are looking for the book value at Year 2: ($108,000 (Purchase Price) - $38,000 (Salvage Value)) / 4 year life = $17,500 x 2 = 35,000 (Accumulated Depreciation) Book Value = $108,000 (Purchase Price) - $35,000 (Accumulated Depreciation) = $73,000

On March 1, Bartholomew Company purchased a new stamping machine with a list price of $77,000. The company paid cash for the machine; therefore, it was allowed a 5% discount. Other costs associated with the machine were: transportation costs, $2,000; sales tax paid, $4,520; installation costs, $1,350; routine maintenance during the first month of operation, $1,900. The cost recorded for the machine was: $82,920. $73,150. $79,670. $81,020.

$81,020. General Feedback We reflect the asset on the balance sheet as the cost of the item plus/minus any discounts and/or costs associated to getting the asset in it's intended location and/or condition. Therefore the cost of the item was $77,000 x 0.95 (less 5% discount) + transportation $2,000 + Sales Tax $4,520 + Installation $1,350. We do no include routine maintenance as this is expensed as inccured.

The following information was drawn from the accounting records of Woo Company. Current assets $ 220,000 Long-term assets (Plant assets) 550,000 Current liabilities 50,000 Long-term liabilities 300,000 Stockholders' Equity 420,000 Earnings before interest and taxes 70,000 Interest expense 25,000 Based on this information, the company's debt to equity ratio is: Note: Round your answer to two decimal places. 0.83 to 1 0.45 to 1 0.57 to 1 0.87 to 1

0.83 to 1 Debt to Equity = Total Liabilities / Total Stockholder's Equity ($50,000 + $300,000) / $420,000

West Company borrowed $58,000 on September 1, Year 1 from the Valley Bank. West agreed to pay interest annually at the rate of 6% per year. The note issued by West carried an 18-month term. Based on this information the amount of interest expense appearing on West's Year 1 income statement would be: $348. $870. $0. $1,160.

1,160 $58,000 (loan amount) x 0.06 (interest rate) x 4/12

The Miller Company reported gross sales of $850,000, sales returns and allowances of $15,000, and sales discounts of $5,000. The company has average total assets of $500,000, of which $250,000 is property, plant, and equipment. What is the company's asset turnover ratio? Note: Round your answer to 2 decimal places. 1.67 times 1.70 times 3.32 times 1.66 times

1.66 times General Feedback Asset Turnover = Net Sales / Average Total Assets ($850,000 - $15,000 (returns) - $5,000 (discounts)) / $500,000

On January 1, Year 1, Raven Limo Service, Incorporated paid $77,000 cash to purchase a limousine. The limo was expected to have a five-year useful life and a $19,000 salvage value. On January 1, Year 5 the limo was sold for $20,000 cash. Assuming Raven uses straight-line depreciation, the company would recognize a: $10,600 loss. $10,600 gain. $38,000 loss. $38,000 gain.

10,600 General Feedback In order to find the book value of the asset as of 1/1/Year 5, we first have to find accumulated depreciation: ($77,000 (Purchase Price) - $19,000 (Salvage Value))/ 5 years = $11,600 x 4 years = $46,400 (Accumulated Depreciation) Book Value as of 1/1/Year 5: $77,000 (Purchase Price) - $46,400 (Accumulated Deprecation) = $30,600 $30,600 (Book Value) - $20,000 (Sales Price) = $10,600 Loss

The Martin Company reported net income of $15,300 on gross sales of $84,500. The company has an average total assets of $119,700, of which $104,500 is property, plant, and equipment. What is the company's return on investment? Note: Round your final answer to 1 decimal place. 18.1% 12.8% 14.6% 70.6%

12.8% Return on Investment = Net Income / Average Total Assets

Farmer Company purchased equipment on January 1, Year 1 for $82,000. The equipment is estimated to have a 5-year life and a salvage value of $4,000. The company uses the straight-line depreciation method. If the original expected life remained the same (i.e., 5-years), but at the beginning of Year 4, the salvage value was revised to $8,000, the annual depreciation expense for each of the remaining years would be: $14,800. $5,440. $27,200. $13,600.

13,600 General Feedback We first need to find the book value as of 1/1/Year 4: ($82,000 (Purchase Price) - $4,000 (Salvage Value)) / 5 year life = $15,600/ year x 3 years = $46,800 Accumulated Deprecation Book Value = $82,000 (Purchase Price) - $46,800 (Accumulated Deprecation) = $35,200 We now can revise our depreciation expense with the new salvage value and the remaining life: ($35,200 (Book Value) - $8,000 (New Salvage Value)) / 2 years remaining life = $13,600

Montana Company was authorized to issue 65,000 shares of common stock. The company had issued 18,000 shares of stock when it purchased 2,500 shares of treasury stock. The number of outstanding shares of common stock was: 18,000. 15,500. 62,500. 20,500.

15,500 General Feedback 18,000 outstanding shares - 2,500 Treasury Stock

The following information was drawn from the accounting records of Jones Company. Net sales $ 342,857 Net income 60,000 Average total assets 575,000 Average total liabilities 350,000 Average total stockholders' equity 225,000 Based on this information, the company's net margin (also known as return on sales) is None of these choices are correct. 17.1% 10.9%. 17.5%.

17.5%. Net Margin = Net Income / Net Sales Results for question 10. 10

Starwood Corporation has current assets of $200,000, total current liabilities of $750,000, net credit sales of $1,300,000, beginning accounts receivable of $65,000, and ending accounts receivable of $69,000. What is Starwood's accounts receivable turnover? 22.4 times 5.8 times 19.4 times 21.8 times

19.4 times Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable $1,300,000 / ((69,000 + 65,000)/2)

Milton Company has total current assets of $46,000, including inventory of $10,000, and current liabilities of $20,000. The company's current ratio is: 0.4. 2.3. 1.8. 2.8.

2.3. General Feedback Current Ratio = Current Assets / Current Liabilities

At the end of the accounting period, Houston Company had $8,400 of par value common stock issued, additional paid-in capital in excess of par value − common of $10,900, retained earnings of $9,000, and $6,500 of treasury stock. The total amount of stockholders' equity is: $12,800. $34,800. $21,800. $26,400.

21,800 General Feedback Stockholder's Equity = Stock Transactions + Retained Earnings. Treasury Stock is a contra Stockholder's Equity account, therefore $8,400 (Common Stock) + $10,900 (PIC) + $9,000 (Retained Earnings) - $6,500 (Treasury Stock) = $21,800

The following balance sheet information was provided by O'Connor Company: Assets Year 2 Year 1 Cash $2,200 $1,200 Accounts receivable $7,200 $5,200 Inventory $22,000 $23,000 Assuming that net credit sales for Year 2 totaled $147,000, what is the company's most recent accounts receivable turnover? 28.27 times 20.42 times 11.85 times 23.71 times

23.71 times General Feedback Accounts Receivable Turnover = Net Credit Sales / Average Accounts Receivable $147,000 / (($7,200 + $5,200) / 2)

The following information was drawn from the accounting records of Jones Company. Note: Round the percentage to 1 decimal place. Net sales $ 316,279 Net income 68,000 Average total assets 590,000 Average total liabilities 345,000 Average total stockholders' equity 245,000 Based on this information the company's return on equity is 11.5%. 27.8%. 21.5%. The answer cannot be determined from the information provided.

27.8%. Return on Equity = Net Income / Average Total Stockholder's Equity

The following balance sheet information is provided for Gaynor Company: Assets Year 2 Year 1 Cash $3,050 $2,300 Accounts receivable 15,800 13,800 Inventory $32,500 $40,000 Assuming Year 2 cost of goods sold is $118,000, what is the company's inventory turnover? None of the these answers are correct. 3.26 times 2.95 times 3.63 times

3.26 times Inventory Turnover = Cost of Goods Sold / Average Inventory $118,000 / (($32,500 + $40,000) / 2)

The following information was drawn from the accounting records of Woo Company. Current assets $ 55,000 Long-term assets 370,000 Current liabilities 41,000 Long-term liabilities 120,000 Stockholders' Equity 264,000 Net Income 61,000 Based on this information, the company's debt to assets ratio is: Note: Round your answer to the nearest whole percentage. 38% 68% 26% 57%

38% Debt-to-Asset Ratio: Total Liabilities / Total Assets ($120,000 + $41,000) / ($55,000 + $370,000)

On January 1, Year 1, Marino Moving Company paid $128,000 cash to purchase a truck. The truck was expected to have a four-year useful life and an $48,000 salvage value. If Marino uses the straight-line method, the amount of accumulated depreciation shown on the Year 2 balance sheet is: $32,000. $64,000. $40,000. $20,000.

40,000 General Feedback Accumulated depreciation is a contra asset account that collects the deprecation of the asset over time. Each year when we depreciate that asset, we increase the balance of the contra asset account therefore as this is Year 2, we have two years of depreciation accumulated. ($128,000 (Purchase Price) - $48,000 (Salvage Value) / 4 year life = $20,000 x 2 = $40,000

The Phibbs Company paid total cash dividends of $175,000 on 35,000 outstanding common shares. On the most recent trading day, the common shares sold at $90. What is this company's dividend yield? 20.00% 3.76% 11.90% 5.56%

5.56% Feedback General Feedback Dividend Yield = Dividends Per Share / Market Price Per Share $175,000 / 35,000 = $5 / $90

Laramie Company paid $600,000 for a purchase that included land, building, and office furniture. An appraiser provided the following estimates of the market values of the assets if they had been purchased separately: Land, $84,000, Building, $490,000, and Office Furniture, $126,000. Based on this information the cost that would be allocated to the land is: Note: Do not round intermediate calculations. $61,920. $91,430. $84,000. $72,000.

72000 General Feedback Since this is a basket purchase, we have to allocate the purchase price between all of the components using the fair market value method. Per the appraisal, the land was worth $84,000, building was worth $490,000 and the furniture was worth $126,000 for a total value of $700,000. The land made up 12% of the fair value ($84,000/$700,000) therefore we would allocate 12% of the purchase price of $600,000 to the land.

On January 1, Year 1, Friedman Company purchased a truck that cost $48,000. The truck had an expected useful life of 100,000 miles over 8 years and an $8,000 salvage value. During Year 2, Friedman drove the truck 18,500 miles. The company uses the units-of-production method. The amount of depreciation expense recognized in Year 2 is: $8,880. $5,000. $7,400. $6,000.

7400 General Feedback Units of Production Depreciation ($48,000 (Purchase Price) - $8,000 (Salvage Value)) / 100,000 miles = $0.40/ mile 18,500 miles x $0.40 = $7,400

Which of the following entities would have a paid-in capital in excess of par (or stated) value account in the equity section of the balance sheet? A municipality A sole proprietorship A partnership A corporation

A corporation

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1. Which of the following reflects the financial statement effects on the May 1, Year 1 date of payment? Balance SheetIncome StatementStatement of Cash FlowsAssets=Liabilities+Stockholders' EquityRevenues−Expenses=Net Income

A.NA=4,500+(4,500)NA−NA=NA(4,500)FA B.(4,500)=(4,500)+NANA−NA=NA(4,500)FA C.(9,000)=(9,000)+NANA−NA=NA(9,000)IA D. None General Feedback On the date of declaration, the company became obligated to pay the dividend and therefore a liability was incurred. On the date of payment, the liability was therefore removed and cash was paid. Calculation: 0.06 x 50 (par value) x 1,500 (shares outstanding)

Which of the following statements is a reason why a company would buy treasury stock? Because management believes the market price of stock is undervalued. To avoid a hostile takeover. All of these are reasons a company would buy treasury stock. To have stock available to issue to employees in stock option plans.

All of these are reasons a company would buy treasury stock.

On January 1, Year 1, Marino Moving Company paid $58,000 cash to purchase a truck. The truck was expected to have a four-year useful life and a $12,000 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following balances: Truck $58,000 Accumulated Depreciation $23,000

Also, on January 1, Year 3 the company paid $20,000 to replace an engine that would extend the useful life of the truck from a total of four years to a total of seven years. Which of the following shows how the engine replacement will affect the account balances after the engine replacement on January 1, Year 3? Truck $78,000, Accumulated Depreciation $23,000 Truck $78,000, Accumulated Depreciation $3,000 Truck $58,000, Accumulated Depreciation $23,000 Truck $58,000, Accumulated Depreciation $3,000

Which of the following terms is used to identify the expense recognition for intangible assets? Depreciation Depletion Allocation Amortization

Amortization

Which ratio measures how effectively a company is using assets to generate revenue? Plant assets to long-term liabilities Asset turnover Inventory turnover Net margin

Asset turnover

On January 1, Year 1, Graham Corporation issued 400 shares of $5 par value common stock for $140 per share. Which of the following shows how the stock issue will affect Graham's financial statements on January 1, Year 1? On January 1, Year 1, Graham Corporation issued 400 shares of $5 par value common stock for $140 per share. Which of the following shows how the stock issue will affect Graham's financial statements on January 1, Year 1?

Balance Sheet Income Statement Statement of Cash Flows Assets = Common Stock + Paid-in Capital in Excess of Par Value Revenues − Expenses = Net Income $56,000 $2,000 $54,000 NA NA NA $56,000 Financing Balance Sheet Income Statement Statement of Cash Flows Assets = Common Stock + Paid-in Capital in Excess of Par Value Revenues − Expenses = Net Income $56,000 $2,000 $54,000 $56,000 NA $56,000 $56,000 Operating Balance Sheet Income Statement Statement of Cash Flows Assets = Common Stock + Paid-in Capital in Excess of Par Value Revenues − Expenses = Net Income $56,000 $2,000 $54,000 NA NA NA $2,000 Financing Balance Sheet Income Statement Statement of Cash Flows Assets = Common Stock + Paid-in Capital in Excess of Par Value Revenues − Expenses = Net Income $56,000 $2,000 $54,000 $54,000 NA $54,000 $54,000 Operating the proceeds are split between Common Stock and PIC. The Common Stock account shares at par value (400 x 5). The remaining funds are shown in PIC (40

On January 12, Year 1, Gilliam Corporation issued 550 shares of $12 par value common stock for $15 per share. The number of shares authorized is 5,000, and the number of shares outstanding prior to this transaction is 1,200. Which of the following answers describes the effect of the January 12, Year 1 transaction?

Balance Sheet Income Statement Statement of Cash Flows Assets = Liabilities + Stockholders' Equity Revenues − Expenses = Net Income Cash + Accounts Receivable = Accounts Payable + Common Stock + PIC in Excess A. 6,600 NA NA 6,600 NA NA NA NA 6,600 FA B. 8,250 NA NA 8,250 NA NA NA NA 8,250 FA C. 8,250 NA NA 6,600 1,650 NA NA NA 8,250 FA D. 8,250 NA NA 6,600 1,650 NA NA NA 8,250 IA General Feedback While $8,250 is the total amount received for the issuance of stock, the proceeds are split between Common Stock and PIC. The Common Stock account holds the number of shares at par value (550 x 12). The remaining funds are shown in PIC (550 x 3)

On January 1, Year 1, Graham Corporation issued 350 shares of $5 stated value preferred stock for $115 per share. Which of the following shows how the stock issue will affect Graham's financial statements on January 1, Year 1? Feedback While $40,250 is the total amount received for the issuance of stock, the proceeds are split between Preferred Stock and PIC. The Preferred Stock account holds the number of shares at the stated value (350 x 5). The remaining funds are shown in PIC (350 x 110)

Balance Sheet Income Statement Statement of Cash Flows Assets = Preferred Stock + Paid-in Capital in Excess of Stated Value Revenues − Expenses = Net Income $40,250 $1,750 $38,500 NA NA NA $40,250 Financing Balance Sheet Income Statement Statement of Cash Flows Assets = Preferred Stock + Paid-in Capital in Excess of Stated Value Revenues − Expenses = Net Income $40,250 $1,750 $38,500 $40,250 NA $40,250 $40,250 Operating Balance Sheet Income Statement Statement of Cash Flows Assets = Preferred Stock + Paid-in Capital in Excess of Stated Value Revenues − Expenses = Net Income $40,250 $1,750 $38,500 NA NA NA $1,750 Financing Balance Sheet Income Statement Statement of Cash Flows Assets = Preferred Stock + Paid-in Capital in Excess of Stated Value Revenues − Expenses = Net Income $40,250 $1,750 $38,500 $38,500 NA $38,500 $38,500 Operating

On March 1, Year 1, Gilmore Incorporated declared a cash dividend on its 1,500 outstanding shares of $50 par value, 6% preferred stock. The dividend will be paid on May 1, Year 1 to the stockholders of record as of April 1, Year 1. How will the entry to record the dividend on March 1 affect the financial statements?

Balance SheetIncome StatementStatement of Cash FlowsAssets=Liabilities+Stockholders' EquityRevenues−Expenses=Net Income A.NA=(9,000)+(9,000)NA−9,000=(9,000)NA B.NA=9,000+(9,000)NA−NA=NANA C.(4,500)=NA+(4,500)NA−NA=NA(4,500)FA D.NA=4,500+(4,500)NA−NA=NANA General Feedback Since the dividends were declared, the company is now obligated to pay the dividend. The company would therefore increase liabilities and dividends and reduce Retained Earnings. Calculation: 0.06 x 50 (par) x 1,500 (outstanding shares)

The following information was drawn from the accounting records of Silverburg Company. Note: Round your answer to 2 decimal places. Net income$ 202,000Preferred stock outstanding, 20% cumulative$ 42,000Market price per share of common stock$ 13Common Stock outstanding$ 1,250,000Average number of common shares outstanding102,000sharesNumber of common shares outstanding at end of the accounting period122,000sharesDividends per share on common stock$ 0.60per share

Based on this information, the company's earnings per share is $2.02 $1.98 $1.90 The answer cannot be determined from the information provided. General Feedback Earnings Per Share = Net Earnings Available for Common Stock / Average Number of Outstanding Common Shares $202,000 - ($42,000 (Preferred) x 0.2) = $193,600 Net Earnings Available for Common Stock $193,600 / 102,000 (Average Number of Outstanding Common Shares)

Which form of business organization is established as a legal entity separate from its owners? Partnership None of these Sole proprietorship Corporation

Corporation

Which ratio measures the percentage of a company's assets that are financed by debt? Debt to equity Return on investment Asset turnover Debt to assets ratio

Debt to assets ratio

Which of the following terms is used to identify the process of expense recognition for property, plant and equipment? Depreciation Depletion Amortization Revision

Depreciation

On January 1, Year 1, Marino Moving Company paid $64,000 cash to purchase a truck. Marino planned to drive the truck for 132,000 miles and then to sell it. The truck was expected to have an $11,200 salvage value. The truck was actually driven 48,000 miles during Year 1; 28,000 miles during Year 2; 43,000 miles during Year 3; and 18,000 miles during Year 4. If Marino uses the units-of-production method, the amount of depreciation expense recognized on the Year 4 income statement is: $5,200. $7,2

General Feedback As 119,000 miles have already been depreciated in the previous years, we only have 13,000 miles to depreciate. ($64,000 (Purchase Price) - $11,200 (Salvage Value)) / 132,000 miles = $0.40 / mile 13,000 x $0.40 = $5,200 $5,200.

Which of the following intangible assets is the value attributable to favorable factors such as reputation, location, and superior products? Trademarks Franchises Copyrights Goodwill

Goodwill

Which of the following statements is correct regarding accounting treatment of goodwill? Goodwill is recorded as an asset and amortized over 40 years unless its fair value decreases. Goodwill is expensed immediately in the year acquired. Goodwill is recorded as an asset and is not written off as an expense unless its fair value is less than its book value. Goodwill is recorded as an asset and amortized over 5 years regardless of any change in value.

Goodwill is recorded as an asset and is not written off as an expense unless its fair value is less than its book value.

On January 1, Year 1, Marino Moving Company paid $62,000 cash to purchase a truck. Marino planned to drive the truck for 100,000 miles and then to sell it. The truck was expected to have an $10,000 salvage value. The truck was actually driven 33,000 miles during Year 1, 13,000 miles during Year 2, 28,000 miles during Year 3 and 10,500 miles during Year 4.

If Marino uses the units-of-production method, the amount of accumulated depreciation shown on the Year 3 balance sheet is: $23,920. $23,920. $33,000. $38,480. General Feedback Since we are looking for Accumulated Depreciation for Year 3, we have to calculate depreciation expense for all three years based on usage: To find our usage rate: ($62,000 (Purchase Price) - $10,000 (Salvage Value)) / 100,000 miles = $0.52/ mile Year 1: 33,000 x $0.52 = $17,160 Year 2: 13,000 x $0.52 = $6,760 Year 3: 28,000 x $0.52 = $14,560 $17,160 + $6,760 + $14,560 = $38,480

What term is used to describe the situation where there is a permanent decline in the value of an intangible asset? Depletion Impairment Depreciation Amortization

Impairment

Ogilvie Corporation issued 18,000 shares of no-par stock for $10 per share. Ogilvie was authorized to issue 41,000 shares. What effect will this event have on the company's financial statements? Increase assets by $180,000, increase stockholders' equity by $180,000. Increase assets by $410,000, increase stockholders' equity by $410,000. None of these answer choices are correct. Increase cash flow from investing activities by $180,000

Increase assets by $180,000, increase stockholders' equity by $180,000.

Llewelyn Company purchased 1,000 shares of its own $10 par value common stock when the market price of the stock was $36 per share. How would this event affect the company's financial statements?

Increase the treasury stock account by $36,000, increase the common stock account by $10,000, and increase the paid-in capital account in excess of par value − common account by $26,000. Increase the treasury stock account and decrease the cash account by $36,000. Increase the treasury stock account and increase the paid-in capital account in excess of par value − common account by $10,000. Increase the cash account by $36,000, decrease the treasury stock account by $10,000, and increase the paid-in capital account in excess of par − Common account by $26,000.

Which of the following terms is applied to long-term assets that have no physical substance and provide rights, privileges and special opportunities to businesses? Intangible assets Property, plant and equipment Natural resources Tangible assets

Intangible assets

Cost of goods sold divided by average inventory is the formula for which of these analytical measures? Number of day's sales in inventory Debt to assets ratio Return on investment Inventory turnover

Inventory turnover

Which of the following is not considered an advantage of the corporate form of business organization? Continuity of existence Ease of transferability of ownership Lack of government regulation Ability to raise capital

Lack of government regulation

Which of the following is not subject to depreciation? Computers Land Office furniture Buildings

Land

Which of the following would be classified as a tangible asset? Copyright Trademark Goodwill Land

Land

The payment of a previously declared cash dividend will: decrease liabilities and increase equity. increase liabilities and decrease equity. decrease assets and equity. None of these answer choices are correct.

None of these answer choices are correct.

Which of the following terms designates the maximum number of shares of stock that a corporation may issue? Number of shares issued Par value Number of shares outstanding Number of shares authorized

Number of shares authorized

On January 2, Year 1, Torres Corporation issued 24,000 shares of $15 par-value common stock for $19 per share. Which of the following statements is true? Total stockholders' equity will increase by $360,000. The paid-in capital in excess of par value account will increase by $96,000. The common stock account will increase by $456,000. The cash account will increase by $360,000.

The paid-in capital in excess of par value account will increase by $96,000. 24,000 x ($19-$15)

Which of the following would be classified as a long-term operational asset? Accounts receivable Notes receivable Inventory Trademark

Trademark

Which of the following is a disadvantage of a sole proprietorship? Unlimited liability Excessive regulation Entrenched management Double taxation

Unlimited liability

On January 1, Year 1, Marino Moving Company paid $53,500 cash to purchase a truck. The truck was expected to have a four-year useful life and a $10,200 salvage value. Marino uses the straight-line method. On January 1, Year 3, Marino's accounting records contained the following balances: Truck $53,500 Accumulated Depreciation $25,500 Also, on January 1, Year 3 the company paid $15,500 to replace the engine to make the truck better by enabling it to operate using less expensive natural gas.

Which of the following shows the account balances after the engine replacement on January 1, Year 3? Truck $69,000, Accumulated Depreciation $41,000 Truck $53,500, Accumulated Depreciation $41,000 Truck $53,500, Accumulated Depreciation $15,500 Truck $69,000, Accumulated Depreciation $25,500 General Feedback Since the improvement was completed on 1/1/ Year 3 and the question is asking about the value of the accounts on the balance sheet as of 1/1/Year 3, Accumulated depreciation remains the same. The value of the asset is increased by the capitalized expense of $15,500.

Two ratios that provide insight on the relationship between credit sales and receivables are: accounts receivable turnover and average days to collect receivables. accounts receivable turnover and current ratio. current ratio and inventory turnover ratio. average days to collect receivables and asset turnover.

accounts receivable turnover and average days to collect receivables.

All of the following are considered to be measures of a company's short-term debt-paying ability except: earnings per share. inventory turnover. current ratio. average collection period.

earnings per share.

A benefit of corporations is that they are free from double taxation. false true

false

The use of estimates and revision of estimates are uncommon in financial reporting. false true

false

The par value of a company's stock: dictates the initial price of the stock. has little connection to the market value of the stock. may be revised each time a company issues more shares of stock. is generally greater than market value.

has little connection to the market value of the stock.

Short-term creditors are usually most interested in assessing: solvency. managerial effectiveness. liquidity. profitability.

liquidity.

Firth Company's annual report shows an average inventory balance of $41,500 and cost of goods of $230,000. Total assets amount to $430,000 and liabilities amount to $103,000. Based on this information (treat any partial day as a whole day): Note: Do not round intermediate calculations. the average number of days to sell inventory is 38. the inventory turnover is 10. the inventory turnover is 2.8. the average number of days to sell inventory is 66.

the average number of days to sell inventory is 66. General Feedback Average Days to Sell Inventory = 365/ Inventory Turnover Inventory Turnover = Cost of Goods Sold / Average Inventory 365 / ( $230,000 / $41,500)

Liability is a significant disadvantage of the partnership form of business organization. false true

true

Madison Company issued an interest-bearing note payable with a face amount of $8,400 and a stated interest rate of 8% to the Metropolitan Bank on August 1, Year 1. The note carried a one-year term. The amount of cash flow from operating activities on the Year 1 statement of cash flows would be: $672. zero. $8,400. $280.

zero General Feedback Interest will be accrued but not paid until the note comes due in the following year, therefore no cash is paid, and the statement of cash flows is not effected in year 1.