BAT Final Exam
Residual value is:
An estimate of the asset's value at the end of its useful life.
T/F A company that is currently in the process of liquidating is considered to be a going concern
False
T/F A partnership has unlimited life
False
T/F Although a proprietorship is not a separate legal entity, a partnership is.
False
T/F As a rule, revenue should not be recognized in the accounting records until received in cash.
False
T/F Assets invested by a partner into a partnership remain the property of the individual partner
False
T/F If a partner is unable to cover a deficiency and the other partners absorb the deficiency, then that partner is thus relieved of all liability
False
T/F If at the time of partnership liquidation, Breck has a $5,000 capital deficiency and pays the partnership $5,000 to cover the deficiency, then Breck is entitled to share in the final distribution of cash
False
T/F If the partners agree on a formula to share income and say nothing about losses, then the losses are shared equally
False
T/F If there is no partnership agreement, the law requires that net incomes or losses are divided among partners in the ratio of their capital investments
False
T/F In closing the partnership accounts at the end of a period, the partners' capital accounts are credited for their share of the net loss or debited for their share of the net income
False
T/F In order to buy into an existing partnership, the new partner must contribute cash
False
T/F Partners' withdrawals are credited to their respective withdrawal accounts
False
T/F Sole entity, dual partnership, and corporation are forms of business ownership
False
A depreciation method that produces larger depreciation charges during the early years of an asset's life and smaller charges in the later years is:
Accelerated depreciation
At the end of the year, SportsWorld completed an asset impairment test and noted that a piece of equipment, with a book value of 12,000, has a recoverable value of $2,000. Calculate the amount of impairment loss on the equipment.
$10,000
Sports Med sold an X-ray machine that originally cost $100,000 for $60,000. The accumulated depreciation on the machine to the date of sale was $40,000. On this sale, Sports Med should recognize:
$0 gain or loss
SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a trade-in value of $2,000, and a five-year service life. At the end of the third year, the trade-in value was revised to $1,200 and the useful life increased to a total of 6 years. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.
$1,600
T/F The assumption that a business will continue to operate until it can sell it's assets to pay its creditors underlies the going concern principle.
False
SportsWorld uses straight-line depreciation for a piece of equipment that cost $12,000, had a salvage value of $2,000, and a five-year service life. At the end of the first year, an impairment loss of $2,000 was recognized on the asset. Calculate the amount of depreciation expense for each of the remaining years of the asset's useful life.
$1,500
T/F The primary objective of Accounting is to have a common set of financial statements to compare globally.
False
Rice, Hepburn, and DiMarco formed a partnership with Rice contributing $50,000, Hepburn contributing $30,000, and DiMarco contributing $20,000. Their partnership agreement called for the earnings division to be based on the ratio of capital investments. If the partnership had a net income of $75,000 for its first year of operation, how much would be credited to DiMarco's capital account?
$15,000
SportsWorld purchased property for a building site. The costs associated with the property were: Purchase Price $175,000 Real Estate Commissions $15,000 Legal Fees $800 Expense of clearing the land $2000 Expense to remove old building $1000 What portion of these costs should be allocated to the cost of the land and what portion should be allocated to the cost of the new building?
$193,800 to Land; $0 to Building
On October 1 of this year, SportsWorld purchased a delivery van for $23,000 with a residual value of $3,000. The van has an estimated useful life of 5 years. Using straight-line depreciation and the half-year rule, how much depreciation expense should SportsWorld recognize on December 31 of this year?
$2,000
Nguyen invested $8,000 and Hansen invested $12,000 in a partnership. They agreed to share incomes and losses by allowing a $9,000 per year salary allowance to Nguyen and a $12,000 per year salary allowance to Hansen, plus interest on the partners' investments at 10%, with the balance to be shared equally. Under this agreement, the shares of the partners with a $51,000 net income are:
$23,800 to Nguyen; $27,200 to Hansen
SportsWorld purchased a machine for $190,000. The machine has a useful life of 8 years and a residual value of $10,000. SportsWorld estimates that the machine could produce 750,000 units of product over its useful life. In the first year, 95,000 units were produced. In the second year, production increased to 111,000 units. Using the units-of-production method, what is the amount of depreciation that should be recorded for the second year?
$26,640
Alban and Thompson formed a partnership with capital contributions with a fair value of $25,000 and $45,000, respectively. Their partnership agreement calls for Alban to receive a $12,000 annual salary allowance. Also, each partner is to receive a share of earnings equal to a 10% return on capital investments. The remaining income or loss is to be divided equally. If the net income for the year is $48,000, then Alban and Thompson's respective shares are:
$29,000; $19,000
T/F Unlimited liability is an advantage for both a proprietorship and a partnership.
False
T/F When a partner leaves a partnership, the withdrawing partner is entitled to a bonus if the recorded equity is overstated
False
Shady Lanes installed automatic sprinkler systems. The electrical work for the installation was $24,000. The invoice price of the sprinkler equipment was $280,000. Additional costs were $5,000 for delivery and $800 for insurance during transportation. During installation a sprinkler line was punctured and was replaced for $200. What is the cost of the sprinkler equipment?
$309,800 ($24,000 + 280,000 + 5,000 + 800)
Collins and Farina are forming a partnership. Collins is investing a building that has a fair market value of $70,000. However, the building is subject to a $36,000 mortgage. Farina is investing $20,000 cash. The amount to be credited to Collins' capital account is:
$34,000
When originally purchased, a vehicle had cost $23,000, with an estimated residual value of $1,500, and an estimated useful life of 8 years. After 4 years of straight-line depreciation, the estimated useful life was revised from 8 to 6 years, but with zero residual value. The depreciation expense in year 5 should be:
$6,125.00
Chen and Wright are forming a partnership. Chen will invest a building that currently is being used by another business owned by Chen. The building has a fair market value of $65,000. Also, the partnership will assume responsibility for a $15,000 note secured by a mortgage on the building. Wright will invest $20,000 cash. On the books of the partnership, the amount to be recorded for the building and credit to Chen's capital account are:
$65,000 and $50,000
SportsWorld discarded a display case it had purchased for $8,000. $7,200 in accumulated depreciation had been recorded to the date of sale. SportsWorld should recognize a gain or loss on disposal of:
$800 loss
On January 1 of this year, SportsWorld purchased a new cash register for $5,400. This register has a useful life of 10 years and a residual value of $400. Using the double-declining-balance method, how much depreciation expense should SportsWorld recognize for next year?
$864
double declining balance depreciation expense
(2 / est.useful life) * book value
units of production depreciation expense
(cost of units - residual value) / Total units of production
A machine originally had an estimated service life of 5 years, and after 3 years, it was decided that the original estimate should have been for 10 years. The remaining cost to be depreciated should be allocated over the next:
7 years
Creek Construction owned a bulldozer which was destroyed by fire. The bulldozer originally cost $38,000. The accumulated depreciation recorded to the date of loss was $20,000. The proceeds from the insurance company were $20,000. Creek Construction should recognize:
A gain of $2,000
An unincorporated association of two or more persons to carry on a business for profit as co-owners is called a:
Partnership
A method that allocates an equal portion of the total depreciation for a property, plant and equipment asset to each unit produced is called:
Units-of-production depreciation
Define Revenue expenditures:
Are additional costs related to property, plant and equipment that do not materially increase the asset's life
Subsequent Capital Expenditures:
Are expenditures making a property, plant and equipment asset more efficient, are often called improvements, Are added to the cost of the asset, and Often extend an asset's useful life.
Ordinary repairs:
Are expenditures to keep an asset in normal operating condition, Do not extend an asset's useful life, Do not materially increase the asset's life or productive capabilities, and Maintain an asset
Intangible assets:
Are rights, privileges, and competitive advantages to the owner, used in operations, having no physical substance and can be amortized.
Land improvements are:
Assets that increase the usefulness of land, but that have a limited useful life.
The original cost of an asset minus accumulated depreciation is called:
Book value
A change in accounting estimate is:
Both reflected only in current and future financial statements and a change in a calculated amount used in the financial statements resulting from new information or subsequent developments and from better insight or improved judgment.
A bonus may be paid:
By a new partner when the current fair value of a partnership is greater than the recorded amounts of equity.
Which of the following statements is Answer: True? A. Partners are employees of the partnership. B. Salaries to partners are expenses on the income statement. C. Salary allowances should reflect the relative value of services provided by partners. D. Salary allowances are expenses. E. Interest allowances are expenses.
C
Brian Tanner contributed $18,000 in cash plus office equipment with a fair value of $30,000 to the BT Partnership. In addition, the partnership assumed a $10,000 note payable. The journal entry to record the transaction is:
Cash 18000 Office Equipment 30000 Note Payable 10000 B.Tanner, Capital 38000
The cost principle requires that an asset be recorded at the:
Cash or cash equivalent amount.
The fact that partnership assets are owned jointly by all partners is called:
Co-ownership of property
Partnership accounting:
Uses a capital and withdrawals account for each partner, and Allocates net income and loss according to the partnership agreement.
A depreciation method in which a property, plant and equipment asset's depreciation expense for the period is determined by applying a constant depreciation rate each year to the asset's beginning book value is called:
Double-declining-balance depreciation
In the absence of a partnership agreement, the law says income/loss sharing should be based on:
Equal shares
The relevant factor(s) in calculating depreciation is(are):
Cost, Residual value, Useful life
The withdrawals account of each partner is: (recording)
Credited when closed to his/her capital account
T/F A capital deficiency exists when all partners have a credit balance in their capital accounts
False
Partners' withdrawals of assets are: (recording)
Debited to their withdrawals accounts
An asset can be disposed of by:
Discarding, Selling, Exchanging, or Donating it to charity
Define a copyright
Gives the owner the exclusive right to publish and sell a musical or literary work during the life of the creator plus 50 years.
If the book value (or carrying amount) of a PPE item is greater than the amount to be recovered through the asset's use or sale, the asset is said to be:
Impaired
Define Depreciation
Is the process of allocating to expense the cost of property, plant and equipment.
Once the estimated depreciation for an asset is calculated:
It may be revised based on new information
SportsWorld paid $140,000 for a property. The property included land appraised at $67,500, land improvements appraised at $25,000, and a building appraised at $55,500. What should be the allocation of costs in the accounting records (round calculations to 2 decimals)?
Land $64,400; land improvements, $23,800; building, $53.200
Property, plant and equipment include:
Land, Land improvements, Buildings, Machinery and equipment.
A partnership designed to protect innocent partners from malpractice or negligence claims resulting from acts of another partner is a:
Limited liability partnership
Disadvantages of a partnership include:
Limited life, Mutual agency, Unlimited liability, Co-ownership of property.
The purchase of real estate that includes land, building, and land improvements is called a:
Lump-sum purchase.
The legal relationship among the partners whereby each partner is an agent of the partnership and is able to bind the partnership to contracts within the apparent scope of the partnership's business is called:
Mutual agency
To be charged to and reported as part of the cost of property, plant and equipment, an expenditure must be:
Normal, Reasonable, and necessary in preparing the asset for its intended use.
The straight-line method and the double-declining-balance method of depreciation:
Produce the same total depreciation over an asset's useful life, Allocate an asset's cost in a systematic and rational manner, Do not produce the same book value each year, and are both acceptable for GAAP
If a partnership contract provides for interest at 10% annually on each partner's investment, the interest:
Provides for the sharing of a portion of the partnership earnings in the capital ratio
The cost of land can include:
Purchase price, Back property taxes, Costs of removing existing buildings, Real estate commissions.
Define a leasehold:
Refers to the rights granted to the lessee by the lessor in a lease.
A partner can withdraw from a partnership by:
Selling his/her interest to another person who pays for it in cash or non-cash assets, or Receiving cash or other assets of the partnership equal or greater to the amount of his/her capital account.
SportsWorld spent $17,000 to remodel its store. This cost will be recognized with a debit to:
Store Building.
Property, plant and equipment are:
Tangible assets used in the operation of a business having a useful life of more than one accounting period. They are also Used in business operations.
A Partnership Agreement is:
The agreement between partners that sets forth the terms under which the affairs of a partnership will be conducted
Define Capital cost allowance:
The income tax act equivalent of depreciation.
Unlimited liability of partners is:
The legal relationship among general partners that makes each of them responsible for paying all the debts of the partnership if the other partners are unable to pay their shares
The useful life of a property, plant and equipment asset is:
The length of time it is productively used in a company's operations
Partnership accounting is:
The same as accounting for a sole proprietorship, except that separate capital and withdrawal accounts are kept for each partner
T/F A capital deficiency can arise from liquidation losses, excessive withdrawals, or recurring losses in prior periods
True
T/F A partnership is an unincorporated association of two or more people to pursue a business for profit as co-owners
True
T/F Accounting systems identify, measure, record, and communicate information about the economic activities of a company.
True
T/F In a limited partnership, the general partner has unlimited liability
True
T/F Mutual agency refers to each partner having the ability to bind or commit the partnership to any contract within the scope of the partnership's business
True
T/F Partners can transfer both assets and liabilities to a partnership
True
T/F The equity section of the balance sheet of a partnership usually shows the individual capital account balance of each partner
True
T/F The partnership agreement gives Tsang 60% and Breck 40% of partnership incomes or losses. The partnership had a net loss of $27,000. Tsang's share of the loss was $16,200. Breck's share was $10,800
True
T/F When a partner leaves a partnership, the partnership ends
True
T/F When a partner leaves a partnership, the partnership ends, but the business can still continue to operate
True
T/F When a partnership is liquidated, the business ends
True
T/F When partners invest in a partnership, their capital accounts are credited for the amount invested
True
T/F When the current market value of a partnership is greater than the recorded amounts of *equity, the partners usually require the new partner to pay a bonus for joining
True
Define a patent
an exclusive right granted to its owner to manufacture and sell a machine or device, or to use a process, for 20 years.
Straight line depreciation expense
depreciable value / useful life
Expenditures that increase the usefulness of land, such as parking lots, are:
depreciated, expressed in the year they're created, and a separate entity from land. NONE OF THE ABOVE