ACC 203 Ch. 8 and 9

which of the following are current liabilities

Accounts payable Deferred revenues Taxes payable

Identify characteristics of notes payable that are not common to accounts payable.

based on promissory note interest bearing

when selling a fixed asset, the seller recognizes a gain or loss for the difference between the amount received and the ___ value of the asset sold

book

the original cost of an asset minus accumulated depreciation is

book value

Long-term tangible assets include

buildings, land, equipment

amortization

allocation of the cost of an intangible asset

depletion

allocation of the cost of natural resources

the gain or loss on disposal of an asset is calculated as:

amount received less the book value of asset sold

for accounting purposes, depreciation is

an allocation of a cost of an asset

an interest rate, unless otherwise specified, is typically a(n) _ rate.

annual

Schmidt Company borrows $10,000 from its bank and signs a 6-month note. Interest, which is due quarterly, is specified in the note as 6%. The 6% interest rate is a(n)

annual, 12 month rate

the allocation of the cost of a tangible fixed asset is referred to as ____, whereas the allocation of the cost of an intangible asset is referred to as ___

depreciation, amoritization

which of the following are long-term assets?

equipment, property

an asset that has no physical substance is called a(n) ___ asset

intangible

an asset that has no physical substance is referred to as a

intangible asset

Otto Inc. retires old equipment with a book value of $2,400. Otto should

recognize a loss of $2,400

which of the following are expenditures for assets subsequent to acquisition?

repairs and maintenance improvements additions

the depreciable cost of an asset is the asset's cost minus its estimated ___ value

residual

an asset ___ occurs when an asset is no longer useful, but cannot be sold

retirement

Classifying liabilities as current or long term helps creditors and investors assess

risk

the estimated use the company expects to obtain from an asset before disposing of it is referred to as the ___ life of the asset

service/depreciable

the depreciation method that allocated an equal amount of the depreciable base to each year of the asset's service life is the

straight-line method

the formula for calculating declining balance depreciation is the depreciation rate per year times

the book value at the beginning of the year

total depreciation recorded over an asset's service life is

the same regardless of the depreciation method used

which of the following does NOT differ among the different depreciation methods?

total depreciation recognized over the asset's service life

TRUE or FALSE: The initial cost of property, plant, and equipment includes the purchase price and all expenditures necessary to bring the asset to its desired condition and location for use

true

the purchase price and all costs to bring an asset to its desired condition and location for use should be

capitalized

Rhodes borrowed $5,000 by signing a 5-year note with an interest rate of 8%. On the date the note is signed, Rhodes should

credit notes payable $5,000.

liabilities are classified as

current and long term

Volker Company signs a 3-month, $10,000 note. Stated interest rate is 12% payable at the maturity date. Interest incurred on the note is:

$300

the formula for calculating the double-declining-balance method is

(book value at beginning of year x 2) / estimated service life

A retirement or abandonment of an asset is different from a sale of an asset because

no cash is received. a loss must be recognized for the remaining book value.

current liability

normal payable within one year

long-term liability

normally payable more than one year from now

The time it takes to spend cash to provide goods and services to a customer until collection of cash from that customer is referred to as the company's

operating cycle

True or false: Companies prefer to report liabilities as long-term versus current.

true

depreciation

allocation of the cost of a tangible fixed asset

the formula for straight-line depreciation is

(cost - residual value) / service life

Which of the following are long-term liabilities?

20-year mortgage payable Note payable due in 3 years

On October 1, 2021, Perry Corporation signed a 12-month, 8% interest-bearing promissory note for $10,000. Assume that all appropriate adjusting journal entries were made at 12/31. The journal entry required when the note matures on October 1, 2022 would include a debit to interest expense for

600

Choose the correct formula for calculating interest.

Face amount x annual interest rate x fraction of the year

Pearce Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $120,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $50,000 and a book value of $32,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Debit equipment $50,000 Debit loss on exchange $30,000 Credit equipment $120,000

Cheng Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $40,000. The new equipment received had a fair value of $40,000 and a book value of $35,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $40,000 Debit loss on exchange $10,000 Credit equipment $90,000 Debit equipment $40,000

Krasel Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $90,000, and its accumulated depreciation at the date of exchange was $70,000. The new asset received had a fair value of $50,000 and a book value of $45,000. The journal entry to record this exchange will include which of the following entries?

Debit accumulated depreciation $70,000 Credit equipment $90,000 Debit equipment $50,000 Credit gain on exchange of asset $30,000

On November 1, Year 1, ABC Corp. borrowed $100,000 cash on a 1-year, 6% note payable that requires ABC to pay both principal and interest on October 31, Year 2. The journal entry on November 1, Year 1 would include which of the following?

Debit to Cash $100,000 Credit to Note Payable $100,000

___ value is the amount the company expects to receive for the asset at the end of its service life

Residual

a(n) _ payable results from an agreement with a supplier to pay within 30 days, whereas a(n) _ payable is a signed contract that promises to pay a specific amount with interest at a specific maturity date.

account, note

straight-line, declining-balance, and activity-based refer to methods commonly used to __ property, plant, and equipment.

depreciate

Wall Corporation exchanges old equipment for new equipment. The original cost of the old equipment was $100,000, and its accumulated depreciation at the date of exchange was $60,000. The new asset received had a fair value of $80,000 and a book value of $65,000. The journal entry to record this exchange will include which of the following entries?

debit equipment $80,000 credit equipment $100,000 debit accumulated depreciation $60,000 credit gain on exchange of asset $40,000

On September 1, ABC Company borrowed $50,000 on a 6%, 9-month note payable to XYZ National Bank. Given no previous adjusting entries have been recorded, ABC's adjusting entry at December 31 would include a

debit to Interest expense of $1,000

the journal entry to retire old equipment that is not fully depreciated includes a

debit to accumulated depreciation debit to loss credit to equipment

A probable future sacrifice of economic benefits arising from present obligations of an entity to transfer assets or provide services as a result of past transactions or events is a(n)

liability

a(n) _ is a probable future sacrifice of economic benefits arising from present obligations to transfer assets or provide services as a result of past transactions or events.

liability

Kauff Company properly classifies certain liabilities payable in 15 months as current liabilities. Kauff's operating cycle must be:

longer than one year