Accounting Cornett Auburn Exam 3 TB

A capital expenditure would appear on the a. income statement under operating expenses. b. balance sheet under fixed assets. c. balance sheet under current assets. d. income statement under other expenses.

B

A fixed asset with a cost of $30,000 and accumulated depreciation of $25,000 is sold for $3,500. What is the amount of the gain or loss on disposal of the fixed asset? a. $2,500 loss b. $1,500 loss c. $2,500 gain d. $1,500 gain

B

A fully depreciated asset must be a. removed from the books. b. kept on the books until sold or discarded. c. disclosed only in the notes to the financial statements. d. recognized on the income statement as a loss.

B

An employee receives an hourly rate of $30, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $300; cumulative earnings for year prior to current week, $90,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings. What is the net pay for the employee? a. $1,147.95 b. $1,059.75 c. $1,470.00 d. $1,359.75

B

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

B

Current liabilities are a. due and receivable within one year. b. due and to be paid out of current assets within one year. c. due but not payable for more than one year. d. payable if a possible subsequent event occurs.

B

Goodwill is a. amortized similar to other intangibles. b. only written down if an impairment in value occurs. c. charged to expense immediately. d. amortized over 40 years or its economic life, whichever is shorter.

B

Payroll taxes levied against employees become liabilities a. the first of the following month. b. at the time the liability for the employee's wages is paid. c. when earned by the employee. d. at the end of an accounting period.

B

A current liability is a debt that can reasonably be expected to be paid a. between 6 months and 18 months. b. out of currently recognized revenues. c. within one year. d. out of cash currently on hand.

C

Accelerated depreciation is primarily used for a. the financial statements of large companies. b. the financial statements of small companies. c. income tax purposes. d. both financial reporting and income taxes by most companies.

C

Depreciable cost equals a. cost less accumulated depreciation. b. book value less residual value. c. cost less residual value. d. market value less residual value.

C

Equipment was purchased for $18,000. It has a useful life of 5 years and a residual value of $2,000. What is depreciation expense for year one under the double-declining-balance method? a. $6,400 b. $3,200 c. $7,200 d. $3,600

C

If a fixed asset is sold and the book value is less than cash received, the company must a. recognize a loss on the income statement under other expenses. b. recognize a loss on the income statement under operating expenses. c. recognize a gain on the income statement under other revenues. d. Gains and losses are not to be recognized upon the sell of fixed assets.

C

If a revenue expenditure is treated as a capital expenditure, then a. expenses are overstated and owners' equity is understated. b. expenses are overstated and assets are overstated. c. expenses are understated and owners' equity is overstated. d. net income is overstated and owners' equity is understated.

C

If the market rate of interest is greater than the contractual rate of interest, bonds will sell a. at a premium. b. at face value. c. at a discount. d. only after the stated rate of interest is increased.

C

Most employers are required to withhold from employees for a. both federal and state unemployment compensation. b. only federal unemployment compensation tax. c. only federal income tax. d. only state unemployment compensation tax.

C

The cost of a product warranty should be included as an expense in the a. period the cash is collected for a product sold on account. b. future period when the cost of repairing the product is paid. c. period of the sale of the product. d. future period when the product is repaired or replaced.

C

The par value per share of common stock represents a. the minimum selling price of the stock established by the articles of incorporation. b. the minimum amount the stockholder will receive when the corporation is liquidated. c. the monetary amount assigned to each share of stock in the articles of incorporation. d. the amount of dividends per share to be received each year.

C

Which of the following is an example of a capital expenditure? a. Cleaning the carpet in the front room b. Tune-up for a company truck c. Replacing an engine in a company car d. Replacing all burned-out light bulbs in the factory

C

A company acquired some land for $80,000 to construct a new office complex. Legal fees paid were $2,300, delinquent taxes assumed were $3,400, and $5,850 was paid to remove an old building from which salvaged materials sold for $1,950. What is the cost basis for the land? a. $93,500 b. $91,550 c. $85,700 d. $89,600

D

A machine was purchased for $60,000. It has a useful life of 5 years and a residual value of $6,000. Under the straight-line method, what is annual depreciation expense? a. $13,200 b. $12,000 c. $11,000 d. $10,800

D

All amounts paid to get an asset in place and ready for use are referred to as a. capital expenditures. b. revenue expenditures. c. residual value. d. cost of an asset.

D

A company purchased an oil well for $25 million with a residual value of $500,000. It is estimated that 10 million barrels can be extracted from the well. Determine depletion expense assuming 3 million barrels are extracted and sold. a. $7,350,000 b. $7,500,000 c. $5,000,000 d. $7,650,000

A

If a capital expenditure is treated as a revenue expenditure, then a. expenses are overstated and owners' equity is understated. b. expenses are overstated and assets are overstated. c. expenses are understated and owners' equity is overstated. d. net income is overstated and owners' equity is understated.

A

If bonds are issued at a premium, the stated interest rate is a. higher than the market rate of interest. b. lower than the market rate of interest. c. too low to attract investors. d. adjusted to a higher rate of interest.

A

Income tax based on taxable income may differ from the income tax based on "Income before Taxes" on the income statement. Which of the following could be a reason for this difference? a. A business may use accelerated depreciation for tax reporting and straight-line for financial reporting purposes. b. Tax payments may not equal the tax due. c. Taxable income is based on Generally Accepted Accounting Principles. d. All of these could be reasons for the difference.

A

The removal of an old building to make the land ready for its intended use is charged to a. land. b. land improvements. c. buildings. d. operating expenses.

A

When the contract rate of interest on bonds is higher than the market rate of interest, the bonds sell at a. a premium. b. their face value. c. their maturity value. d. a discount.

A

Where is interest expense listed on the income statement? a. Other expense section b. Cost of merchandise sold c. Operating expenses d. Interest expense is on the balance sheet, not the income statement.

A

Which method of depreciation considers residual value in computing the normal periodic depreciation? a. Straight-line b. MACRS c. Double-declining-balance d. All of these

A

Recording depreciation a. decreases net income and cash flows. b. decreases net income and has no effect on cash flows. c. decreases net income, assets, and cash flows. d. decreases net income and has no effect on assets and cash flows.

B

The market interest rate related to a bond is also called the a. stated interest rate. b. effective interest rate. c. contract interest rate. d. straight-line rate.

B

Which of the following is usually NOT a prerequisite to paying a cash dividend? a. Formal action by the board of directors b. Market value in excess of par value per share c. Sufficient cash d. Sufficient retained earnings

B

. Intangible assets are used in operations but a. cannot be specifically identified. b. cannot be sold. c. lack physical substance. d. cannot be long-lived.

C

45. In which section of the balance sheet would treasury stock be reported? a. Fixed assets b. Long-term liabilities c. Stockholders' equity d. Intangible assets

C

A bond indenture is a. a contract between the corporation issuing the bonds and the underwriters selling the bonds. b. the amount due at the maturity date of the bonds. c. a contract between the corporation issuing the bonds and the bondholders. d. the amount for which the corporation can buy back the bonds prior to the maturity date.

C

A company sold 200 shares of common stock with a par value of $5 at a price of $13 per share. What is the effect on the accounts of this transaction? a. Increase cash $2,600; increase retained earnings $2,600 b. Increase cash $1,000; increase common stock $1,000 c. Increase cash $2,600; increase common stock $1,000 and increase paid-in capital $1,600 d. Increase cash $2,600; increase common stock $1,600 and increase paid-in capital $1,000

C

An employee receives an hourly rate of $27, with time and a half for all hours worked in excess of 40 during a week. Payroll data for the current week are as follows: hours worked, 46; federal income tax withheld, $350; cumulative earnings for year prior to current week, $99,700; social security tax rate, 6.0% on maximum of $106,800; and Medicare tax rate, 1.5% on all earnings. What is the gross pay for the employee? a. $798.85 b. $873.77 c. $1,242.00 d. $1,323.00

D

Book value is defined as a. current market value less residual value. b. cost less residual value. c. current market value less accumulated depreciation. d. cost less accumulated depreciation.

D

Current liabilities are a. due but not receivable for more than one year. b. due but not payable for more than one year. c. due and receivable within one year. d. due and payable within one year.

D

Expenditures that add to the utility of fixed assets for more than one accounting period are a. committed expenditures. b. revenue expenditures. c. current expenditures. d. capital expenditures.

D

On June 5 Glover Co. issued a $60,000, 6%, 120-day note payable to Jones Co. How much will Glover Co. have to pay at maturity? a. $63,600 b. $58,800 c. $60,000 d. $61,200

D

Other descriptive titles for fixed assets would include a. plant assets. b. property, plant, and equipment. c. other long-term assets d. both plant assets and property, plant, and equipment.

D

The Drilling Company purchased a mining site for $500,000 on July 1, 2010. The company expects to mine ore for the next 10 years and anticipates that a total of 100,000 tons will be recovered. The estimated residual value of the property is $80,000. During 2010 the company extracted 6,500 tons of ore. The depletion expense for 2010 is a. $37,700. b. $42,000. c. $32,500. d. $27,300.

D

The excess of issue price over par of common stock is termed a(n) a. discount. b. income. c. deficit. d. premium. ANS: D

D

The total earnings of an employee for a payroll period are referred to as a. take-home pay. b. pay net of taxes. c. net pay. d. gross pay.

D

What is the effect of a stock dividend on the balance sheet? a. Decrease total assets and decrease total stockholders' equity b. Decrease total assets and increase total stockholders' equity c. Increase total liabilities and decrease total stockholders' equity d. No effect on total assets, total liabilities, or total stockholders' equity

D

What options does a business have when financing operations? a. Debt financing b. Equity financing c. Asset financing d. Both debt financing and equity financing

D

When are contingent liabilities required to be recorded? a. When the liability is probable b. When the amount is reasonably estimable c. When the liability becomes legally enforceable d. Both the liability must be probable and the amount must be reasonably estimable before the contingent liability is recorded.

D

When the contract rate of interest on bonds is less than the market rate of interest, the bonds sell at a. a premium. b. their face value. c. their maturity value. d. a discount.

D

Which of the following is characteristic of deferred income tax payable? a. Deferred income tax payable is often generated due to timing differences. b. Deferred income tax payable may be either a current or long-term liability c. Deferred income tax payable represents the deferred payment of taxes to later years through tax planning techniques. d. All of these are characteristics of deferred income tax payable.

D

Which of the following would most likely be classified as a current liability? a. Two-year notes payable b. Bonds payable c. Mortgage payable d. Unearned rent

D