ACC201: exam 3 (ch 7 - 9) review questions

A company purchased land and building from a seller for $900,000. A separate appraisal reveals the fair value of the land to be $200,000 and the fair value of the building to be $800,000. For what amount would the company record land at the time of purchase? Multiple Choice $900,000. $200,000. $180,000. $220,000.

C

Suppose that Neuman Exploration Tours has filed a lawsuit against a competitor for an alleged trademark violation. At the end of the year, Neuman's attorney estimates that the company will likely win the lawsuit and be awarded between $1.5 and $2 million, with the most likely amount being $1.8 million. How much should Neuman record as a gain? Multiple Choice $2.0 million. $1.8 million. $1.5 million. $0.

D

Which of the following is not an advantage of debt financing? Multiple Choice Interest is tax deductible. The cost of borrowing may be lower than the return on equity. The ownership interest of current stockholders is unchanged. Debt financing often has no maturity date.

D

Airline Accessories obtains a $100,000, three year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded for interest expense for the first full month? Multiple Choice $500. $6,000. $3,042. $2,542.

A

If equipment is retired, which of the following accounts would be debited? Multiple Choice Accumulated depreciation. Depreciation expense. Equipment. Cash.

A

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably likely, a contingent liability should be: Multiple Choice Disclosed but not reported as a liability. Disclosed and reported as a liability. Neither disclosed or reported as a liability. Reported as a liability but not disclosed.

A

On November 1, 20X1, a company signed a $200,000, 12%, six-month note payable with the amount borrowed plus accrued interest due six months later on May 1, 20X2. The company should report the following adjusting entry at December 31, 20X1: Multiple Choice Debit interest expense and credit interest payable, $4,000. Debit interest expense and credit cash, $4,000. Debit interest expense and credit interest payable, $12,000. Debit interest expense and credit cash, $12,000.

A

The amount of the gain on the sale of equipment equals: Multiple Choice The selling price minus the book value of the equipment. The selling price minus the original cost of the equipment. The selling price minus the fair value of the equipment. The selling price minus accumulated depreciation of the equipment.

A

When a customer pays in advance for a product or service, the advance payment received by the company is recorded as: Multiple Choice A debit to an asset and a credit to a liability account. A debit to a revenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account.

A

Which of the following expenditures should be recorded as an asset? Multiple Choice An addition which increases future benefit. Repairs that maintain current benefits. Maintenance that maintain current benefits. Unsuccessful legal defense of an intangible asset.

A

Equipment originally costing $100,000 has accumulated depreciation of $65,000. If it is sold for $40,000, the company should record: Multiple Choice A loss of $5,000. A gain of $5,000. A loss of $70,000. A gain of $70,000.

B

Interest expense is recorded in the period in which: Multiple Choice The interest is paid. The interest is incurred. The interest is paid or incurred. The interest is paid and incurred.

B

The Open Grill incurred the following costs in acquiring a new piece of land: Cost of the land$80,000 Commissions 4,800 Liability insurance for the first year 1,200 Cost of removing existing building 20,000 Sale of salvaged materials (4,000) Total costs$102,000 What is the total recorded cost of the land? $102,000. $100,800. $106,000. $80,000.

B

Which of the following expenditures should be capitalized? Multiple Choice Research and development costs. An improvement to a tangible asset. Ordinary repairs and maintenance. Unsuccessful legal defense of an intangible asset.

B

Which of the following is not a primary source of long-term debt financing? Multiple Choice Notes payable. Accounts payable. Leases. Bonds.

B

he asset's cost less accumulated depreciation is called: Multiple Choice Replacement cost. Book value. Net fair value. Residual value.

B

If Executive Airways borrows $10 million on April 1, 20X1, for one year at 6% interest, how much interest expense does it record for the year ended December 31, 20X1? Multiple Choice $300,000 $450,000 $150,000 $600,000

B 9 months... 10 million * 0.06 * 9 / 12 = 450k

A contingent liability that is probable and can be reasonably estimated must be Multiple Choice Disclosed. Not disclosed. Recorded. Paid.

C

A long-term asset is recorded at the: Multiple Choice Cost of the asset. Additional costs to get the asset ready for use. Cost of the asset plus all costs necessary to the asset ready for use. Cost of the asset less all costs necessary to the asset ready for use.

C

Accumulated depreciation is: Multiple Choice An expense account. An asset. A contra-asset. A liability.

C

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record? Multiple Choice Debit Cash, $5,000; Credit Notes Receivable, $5,000. Debit Notes Receivable, $5,000; Credit Cash, $5,000. Debit Cash, $5,000; Credit Notes Payable, $5,000. Debit Notes Payable, $5,000; Credit Cash, $5,000.

C

Which of the following correctly describes the nature of depreciation? Multiple Choice Depreciation represents the valuation of property, plant, and equipment over its service life. Depreciation represents the valuation of an intangible asset over its service life. Depreciation represents the allocation of the cost of property, plant, and equipment over its service life. Depreciation represents the allocation of the cost of an intangible asset over its service life.

C

Which of the following depreciation methods typically results in the highest depreciation expense during the first year of an asset's life? Multiple Choice Straight-line method. Activity-based method. Double declining balance method. Each method will result in the same depreciation during the first year.

C

Which of the following expenditures should be recorded as an expense? Multiple Choice An addition which increases future benefit. An improvement. Ordinary repairs and maintenance. Successful legal defense of an intangible asset.

C

Which of the following is properly recorded as an intangible asset? Multiple Choice An internally developed trademark. A piece of land. A purchased patent. An internally developed copyright.

C

Which of the following is reported as a current liability? Multiple Choice Notes payable due in two years. Notes payable due in 15 months. Current portion of long-term debt. Unused line of credit.

C

A delivery truck was purchased for $60,000 and is expected to be used for 5 years and 100,000 miles. The truck's residual value is $10,000. By the end of the first year, the truck has been driven 16,000 miles. What is the depreciation expense in the first year using activity-based depreciation? Multiple Choice $9,600. $12,000. $8,000. $10,000.

C (60,000-10,000) / 100,000 = 0.5 0.5 * 16,000= 8000

A company leases an office building for 24 months. At the beginning of the lease period, the lessee (user) would: Multiple Choice Record a lease asset. Record a lease liability. Record a lease for the present value of the 24 lease payments. All of the answers are correct.

D

The Cheese Factory incurred the following costs related to acquiring a new piece of equipment: Cost of the equipment$50,000 Sales tax (8%) 4,000 Shipping 3,000 Installation 2,000 Depreciation during the first month 1,000 Total costs$60,000 What is the total recorded cost of the equipment? Multiple Choice $60,000. $50,000. $57,000. $59,000.

D

When a product or service is delivered to a customer that previously paid in advance, the delivery is recorded as: Multiple Choice A debit to a revenue and a credit to a liability account. A debit to a revenue and a credit to an asset account. A debit to an asset and a credit to a revenue account. A debit to a liability and a credit to a revenue account.

D

Which of the following represents a characteristic of a liability? Multiple Choice A probable future sacrifice of economic benefits. Arising from present obligations to other entities. Resulting from past transactions or events. All of these are characteristics of a liability.

D

Airline Accessories obtains a $100,000, three-year loan, at 6% interest, with monthly payments of $3,042. What amount would be recorded as the reduction in principal for the first full month? Multiple Choice $500. $6,000. $3,042. $2,542.

D 3042 - 500

Real Angus Steakhouse purchased land for 75k cash, commissions of 4,500, property taxes of 5k and title insurance of 800 were also incurred. The 5k in property taxes includes 4k in back taxes paid by steakhouse on behalf of the seller & 1k due for the current year after the purchase date. For what amount should real angus steakhouse record the land A: 83,500 B: 84,300 C: 85,300 D: 75,000

b

when an expenditure or cost is capitalized, that means.. a-expenditure is recorded as an expenses on the income statement in the period the cost is incurred b-the cost is recorded as part of the asset's cost on the balance sheet c-the expenditure is depreciated over the asset's useful life d-none of the above

b

MCCC acquired land for 50k for a new coffee shop & estimated coffee ship would operate for 10 years & estimated no residual value associated with the land at the end of operations. Depreciation expense to be recorded in the first year would be A:10k B:50k C:5k d-none of the above

d