Acc Final Exam

Cash equivalent price is...

the fair value of the asset given up or the fair value of the asset received

When does a loss on disposal of a plant asset occur?

when proceeds are less than the book value

When does a gain on disposal of a plant asset occur?

when proceeds exceed the book value

The balance in accumulated depreciation represents the total cost that has been charged to expense since placing the asset in service. True or False

True

The revenue-producing ability of a depreciable asset will decline due to wear and tear and to obsolescence. True or False

True

Three factors affect the computation of depreciation: cost, useful life, and salvage value. True or False

True

Which one of the following is not a typical current liability? A. Unearned revenue B. Sales taxes payable C. Bonds payable D. FICA taxes payable

C. Bonds Payable. Bonds payable is usually a long-term liability.

Which one of the following is not a typical current liability? A. Current maturities of long-term debt B. Interest payable C. Mortgages payable D. Salaries payable

C. Mortgages payable Mortgages are long-term liabilities as they are typically paid over 15 to 30 years.

What are costs for Equipment?

1. cash purchase price 2. sales tax 3. freight charges 4. insurance during transit paid by the purchaser 5. expenditures required in assembling, installing and testing the unit

What are costs for Land?

1. cash purchasing price 2. closing costs such as title and attorney's fees 3. real estate brokers' commissions 4. accrued property taxes and other liens on the land assumed by the purchaser

A corporation issues $1,000,000 of 8%, 5-year bonds. The 8% rate of interest is called the __________ rate. A. contractual B. yield C. market D. effective

A. Contractual The interest rate printed on the bonds is the contractual, face, or stated rate. Yield, effective, and market rates are different terms to describe the interest rate that an investment can earn in the market.

Which depreciation method calculates annual depreciation expense based on book value at the beginning of each year? A. Declining-balance B. Salvage method C. Straight-line D. Units-of-activity

A. Declining-balance All declining-balance methods are affected by the beginning of the year book value.

Which of the following should be classified as an "other" receivable? A. Interest receivable B. Notes receivable C. Accounts receivable D. Trade receivables

A. Interest receivable Trade, accounts, and notes receivables are financial instruments typically accepted from customers for the value of a transaction. Interest receivable results because of the time value of money.

When using the straight-line depreciation method, which of the following is not a factor affecting the computation of depreciation? A. Salvage value B. Book value C. Useful life D. Cost

B. Book value Book value is equal to acquisition cost less accumulated depreciation. The factors affecting the computation of depreciation include acquisition cost, useful life, and salvage value.

When a bond is sold at a premium, at what amount is it reported on the balance sheet? A.Premium value B. Carrying value C. Interest value D. Market value

B. Carrying Value The face value is presented on the balance sheet with the amount of the unamortized premium added to it. When combined, these two values represent the carrying value of the bonds.

When recording payroll, A. gross earnings are recorded as salaries and wages payable. B. payroll deductions are recorded as liabilities. C. net pay is recorded as salaries and wages expense and payroll deductions are recorded as liabilities. D. net pay is recorded as salaries and wages expense.

B. Payroll deductions are recorded as liabilities Payroll deductions are recorded as liabilities. Gross earnings are recorded as salaries and wages expenses. Net pay is recorded as salaries and wages payable.

When there is a change in estimated depreciation A. previous depreciation should be corrected. B. current and future years' depreciation should be revised. C. only future years' depreciation should be revised. D. new plant assets should be acquired to replace the old.

B. current and future years' depreciation should be revised.

Capital Expenditure

Costs included in a plant asset account

Revenue Expenditure

Costs incurred to acquire a plant asset that are expensed immediately

What are Additions and Improvements

Costs incurred to increase the operating efficiency, productive capacity, or useful life of a plant asset Debit: The plant asset affected

At what value are accounts receivable reported on the balance sheet? A. Maturity value B. Fair market value C.Present value D. Cash (net) realizable value

D. Cash (net) realizable value Accounts receivable are reported at net realizable value. This value is the total amount due less an estimate for doubtful accounts.

When is a receivable recorded by a service organization? A. When the related expenses are incurred B. When the bill is sent to the customer C. When the customer pays D. When service is provided on account

D. When service is provided on account A receivable is recorded when the service is performed, not at some other specific date.

A permanent decline in the market value of an asset is called A. a capital expenditure. B. a disposal. C. a write-down. D. an impairment.

D. an impairment. An impairment is recognized when a permanent decline in the market value of an asset exists.

Which of the following is a criterion for the classification of a liability as current? I. It is a debt that can be paid from existing current assets. II. It is a debt that can be paid through the creation of other current liabilities. III. It must be paid within one year or the operating cycle, whichever is shorter.

I and II A current liability is a debt the company reasonably expects to pay (1) from existing current assets or through the creation of other current liabilities, and (2) within the next year or the operating cycle, whichever is longer.

Allowance Method

Losses are estimated: - better matching - receivable stated at net realizable value - required by GAAP

The book value of a plant asset should approximate its fair value. True or False

False. The book value of a plant asset may be quite different from its market value.

When recording payroll, A. gross earnings are recorded as salaries and wages payable. B. net pay is recorded as salaries and wages expense. C. payroll deductions are recorded as liabilities. D. net pay is recorded as salaries and wages expense and payroll deductions are recorded as liabilities.

C. payroll deductions are recorded as liabilities. Payroll deductions are recorded as liabilities. Gross earnings are recorded as salaries and wages expenses. Net pay is recorded as salaries and wages payable.

If a company reports goodwill as an intangible asset on its books, what is the one thing you know with certainty? A. The company is a valuable company worth investing in. B. The goodwill will generate a lot of positive business for the company for many years to come. C. The company has a well-established brand name. D. The company purchased another company.

D. The company purchased another company. In order to report goodwill, a company must have entered into an exchange transaction that involves the purchase of an entire business.

Journal Entry for recovery of an uncollectible account

Debit: Account Receivable Credit: Allowance for Doubtful Accounts Debit: Cash Credit: Account Receivable

Journal Entry for eliminating an asset

Debit: Accumulated depreciation Loss on Disposal (if needed) Credit: The asset Account

Journal Entry for writing off a debt under the allowance method

Debit: Allowance for Doubtful Accounts Credit: Account Receiveable

Journal Entry for estimating debt under the allowance method

Debit: Bad Debt Expense Credit: Allowance for Doubtful Accounts

Depreciation does not apply to a building because its usefulness and revenue-producing ability generally remain intact over time. True or False

Depreciation does not apply to LAND because its usefulness and revenue-producing ability generally remain intact over time.

If the contractual rate of interest is lower than the market rate of interest, bonds will sell at what? Par, discount, premium?

Discount

What is the rate for the double declining-method?

Double the straight-line right ** rate applied to book value

What are Ordinary Repairs?

Expenditures to MAINTAIN the operating efficiency and productive life of the unit Debited: Maintenance and Repairs Expense

How do you calculate interest for a note payable?

Face value of note * Annual interest rate * Time in terms of one year (If using days, use out of /360 not /365)

Factoring is the process of

Factoring is the process of selling accounts receivable to another party.

Depreciation applies to three classes of plant assets: land, buildings, and equipment. True or False

False. Depreciation applies to three classes of plant assets: land IMPROVEMENTS, buildings, and equipment.

Depreciation expense and accumulated depreciation are reported on the income statement. True or False

False. Depreciation expense is reported on the income statement, and accumulated depreciation is reported as a deduction from plant assets on the balance sheet.

Depreciation is a process of asset valuation, not cost allocation. True or False

False. Depreciation is a process of cost allocation, not asset valuation.

Recognizing depreciation on an asset results in an accumulation of cash for replacement of the asset. True or False

False. Recognizing depreciation on an asset DOES NOT result in an accumulation of cash for replacement of the asset.

If the contractual rate of interest is higher than the market rate of interest, bonds will sell at what? Par, Discount, Premium?

Premium

What are the costs for Buildings?

Purchase costs: Purchase price, closing costs (attorney's fees, title insurance) and real estate broker's commission Construction costs: contract price, architects' fees, buildings permits, excavation costs

How do companies dispose of plant assets in what ways?

Retirement, sale or exchange

What is the depreciable cost?

The cost - the salvage value

Direct Write-Off method for uncollectible accounts

Theoretically undesirable: - no matching - receivable not state at net realizable value - not acceptable for financial reporting

Depreciation provides for the proper matching of expenses with revenues. True or False

True