TEST 3 STUDY SET

The balance in the Accumulated Depreciation account represents the cash fund to be used to replace plant assets. amount to be deducted from the cost of the plant asset to arrive at its fair market value. amount charged to expense in the current period. amount charged to expense since the acquisition of the plant asset.

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

The book value of an asset is equal to the asset's fair value less its historical cost. blue book value relied on by secondary markets. replacement cost of the asset. asset's cost less accumulated depreciation.

asset's cost less accumulated depreciation.

A current liability is a debt that can reasonably be expected to be paid within one year, or the operating cycle, whichever is longer. between 6 months and 18 months. out of currently recognized revenues. out of cash currently on hand.

within one year, or the operating cycle, whichever is longer.

If the market rate of interest is lower than the contractual interest rate, the bonds will sell at face value. a premium. a discount. an unknown amount.

a premium

Liabilities are classified on the balance sheet as current or deferred. unearned. long-term. accrued.

long-term

A company purchased land for $94000 cash. The real estate brokers' commission was $5000 and $7000 was spent for demolishing an old building on the land before construction of a new building could start. Proceeds from salvage of the demolished building were $1200. Under the historical cost principle, the cost of land is $104800. $94000. $99800. $106000.

$104,800

The interest charged on a $90000 note payable, at the rate of 6%, on a 90-day note would be (Use 360 days for calculation.) $5400. $2700. $1350. $900.

$1350

The interest charged on a $300000 note payable, at the rate of 6%, on a 90-day note would be (Use 360 days for calculation.) $18000. $9000. $4500. $1500.

$4500

Whyte Clinic purchases land for $420000 cash. The clinic assumes $4500 in property taxes due on the land. The title and attorney fees totaled $3000. The clinic had the land graded for $6600. What amount does Whyte Clinic record as the cost for the land? $426600. $420000. $434100. $427500.

$434100

Bonds with a face value of $500000 and a quoted price of 97.25 have a selling price of $486250. $485125. $485013. $487500.

$486250

Bonds with a face value of $600000 and a quoted price of 104.25 have a selling price of

$625500.

On January 1, a machine with a useful life of five years and a salvage value of $25000 was purchased for $125000. What is the depreciation expense for year 2 under straight-line depreciation? $15000. $75000. $20000. $60000.

20,000

Machinery was purchased for $340000. Freight charges amounted to $14000 and there was a cost of $40000 for building a foundation and installing the machinery. It is estimated that the machinery will have a $60000 salvage value at the end of its 5-year useful life. Depreciation expense each year using the straight-line method will be $78800. $66800. $57200. $56000.

66,800

Equipment with a cost of $300000 has an estimated salvage value of $20000 and an estimated life of 4 years or 10000 hours. It is to be depreciated by the straight-line method. What is the amount of depreciation for the first full year, during which the equipment was used for 2700 hours? $75000. $70000. $75600. $72500.

70,000

A company purchased factory equipment on June 1, 2022 for $128000. It is estimated that the equipment will have a $8000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2022 is $12000. $7000. $6000. $5000.

7000

A company purchased factory equipment on April 1, 2022 for $128000. It is estimated that the equipment will have a $16000 salvage value at the end of its 10-year useful life. Using the straight-line method of depreciation, the amount to be recorded as depreciation expense at December 31, 2022 is $12800. $11200. $8400. $9600.

8400

What is the purpose of recording depreciation? A. To allocate the cost of the assets to the accounting periods in which the assets are used to produce benefits B. To reduce the value of the assets on the balance sheet to their fair values C. To pay for possible future repairs and eventual replacement of the assets D. To avoid overstating the book value of the assets

A

Which of the following is included as part of property, plant, and equipment but does not decline in service potential? A. Land on which a company warehouse is built B. Fixed assets used in production C. A patent that provides a superior product compared to competitors D. Parking lots and sidewalks providing access for a company's employees

A

Which of the following is not a current liability on December 31, 2022? A Note Payable due December 31, 2023. An Accounts Payable due January 31, 2023. A lawsuit judgment to be decided on January 10, 2023. Accrued salaries payable from 2022.

A lawsuit judgment to be decided on January 10, 2023.

One characteristic of a plant asset is that it is A. intangible. B. used in the operations of a business. C. held for sale in the ordinary course of the business. D. not currently used in the business but held for future use.

B

What does the balance of the Accumulated Depreciation account represent? A. The decline in value of plant assets B. The accumulation of funds needed to replace the assets at the end of their useful life C. The portion of the cost allocated as an expense since the asset was acquired D. The fair value of the asset that is being depreciated

C

In 2022, Blanchard Corporation has plant equipment that originally cost $120000 and has accumulated depreciation of $48000. A new processing technique has rendered the equipment obsolete, so it is retired. Which of the following entries should Blanchard use to record the retirement of the equipment?

Dr. Accumulated Depreciation - Equipment 48000 Dr. Loss on Disposal of Plant Assets 72000 Cr. Equipment 120000

Five thousand bonds with a face value of $1000 each, are sold at 97. The entry to record the issuance is

Dr. Cash 4850000 Dr. discount on bonds payable 150,000 Cr. Bonds payable 5,000,000

Moss County Bank agrees to lend the Sadowski Brick Company $500000 on January 1. Sadowski Brick Company signs a $500000, 6%, 9-month note. The entry made by Sadowski Brick Company on January 1 to record the proceeds and issuance of the note is

Dr. Cash 500,000 Cr. Notes payable 500,000

A cash register tape shows cash sales of $8000 and sales taxes of $400. The journal entry to record this information is

Dr. Cash 8400 Cr. Sales Revenue 8000 Cr. Sales Taxes Payable 400

Five thousand bonds with a face value of $1000 each, are sold at 102. The entry to record the issuance is

Dr. Cash. 5100000 Cr. Premium on Bonds Payable 100000 Cr. Bonds Payable 5000000

Moss County Bank agrees to lend the Sadowski Brick Company $500000 on January 1. Sadowski Brick Company signs a $500000, 6%, 9-month note. What is the adjusting entry required if Sadowski Brick Company prepares financial statements on June 30?

Dr. Interest expense 15,000 Cr. Interest payable 15,000

What does the balance of the Accumulated Depreciation account represent? The decline in value of plant assets The accumulation of funds needed to replace the assets at the end of their useful life The portion of the cost allocated as an expense since the asset was acquired The fair value of the asset that is being depreciated

The portion of the cost allocated as an expense since the asset was acquired

If the market interest rate for a bond is higher than the stated interest rate, the bond will sell at a premium. a discount. par. either a discount or premium.

a discount

In computing depreciation, salvage value is the fair value of a plant asset on the date of acquisition. subtracted from accumulated depreciation to determine the plant asset's depreciable cost. an estimate of a plant asset's value at the end of its useful life. ignored in all the depreciation methods.

an estimate of a plant asset's value at the end of its useful life.

The current portion of long-term debt should be paid immediately. be reclassified as a current liability. be classified as a long-term liability. not be separated from the long-term portion of debt.

be reclassified as a current liability

A gain or loss on disposal of a plant asset is determined by comparing the replacement cost of the asset with the asset's original cost. book value of the asset with the asset's original cost. original cost of the asset with the proceeds received from its sale. book value of the asset with the proceeds received from its sale.

book value of the asset with the proceeds received from its sale.

Depreciation is a process of asset devaluation. cost accumulation. cost allocation. asset valuation.

cost allocation

Bonds that may be exchanged for common stock at the option of the bondholders are called options. stock bonds. convertible bonds. callable bonds.

convertible bonds.

A company receives $264, of which $24 is for sales tax. The journal entry to record the sale would include a debit to Sales Taxes Expense for $24. credit to Sales Taxes Payable for $24. debit to Sales Revenue for $264. credit to Cash for $264.

credit to sales tax payable for $24

Sales taxes collected by a retailer are recorded by crediting Sales Tax Revenue. debiting Sales Tax Expense. crediting Sales Taxes Payable. debiting Sales Taxes Payable.

crediting Sales Taxes Payable.

The declining-balance method of depreciation produces a(n) decreasing depreciation expense each period. increasing depreciation expense each period. declining percentage rate each period. constant amount of depreciation expense each period.

decreasing depreciation expense each period.

In the balance sheet, the account Discount on Bonds Payable is added to bonds payable. deducted from bonds payable. classified as a stockholders' equity account. classified as a revenue account.

deducted from bonds payable.

Secured bonds are bonds that are in the possession of a bank. can be converted into common stock. have specific assets of the issuer pledged as collateral. mature in installments.

have specific assets of the issuer pledged as collateral.

As interest is recorded on an interest-bearing note, the Interest Expense account is increased; the Notes Payable account is increased. increased; the Notes Payable account is decreased. increased; the Interest Payable account is increased. decreased; the Interest Payable account is increased.

increased; the Interest Payable account is increased.

From the standpoint of the issuing company, a disadvantage of using bonds as a means of long-term financing is that bond interest is deductible for tax purposes. interest must be paid on a periodic basis regardless of earnings. income to stockholders may increase as a result of trading on the equity. the bondholders do not have voting rights.

interest must be paid on a periodic basis regardless of earnings.

Bonds that are secured by real estate are termed mortgage bonds. serial bonds. debentures. convertible bonds.

mortgage bonds

Unearned Rent Revenue is a contra account to Rent Revenue. a revenue account. reported as a current liability. debited when rent is received in advance.

reported as a current liability

Depreciation is the process of allocating the cost of a plant asset over its useful life in a(n) equal and equitable manner. accelerated and accurate manner. systematic and rational manner. conservative market-based manner.

systematic and rational manner.

Which of the following methods of computing depreciation is production based? Straight-line. Declining-balance. Units-of-activity. None of these answer choices are correct.

units-of-avtivity