Accounting Exam 3

GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in unearned sales revenue. What is the division's current ratio? a. 2.25 b. 3.00 c. 1.75 d. 3.50

d. 3.50

For Heaven Scapes purchased a trademark at the beginning of 2012 for $200,000. The trademark's legal life is 10 years. How much total amortization expense would have been recorded by January 2013? a. $0 b. $40,000 c. $20,000 d. $60,000

a. $0

During 2012, Gardner Home Center sold 800 power washers for $350 each. The power washers carry a 2-year warranty for repairs. Estimates indicate that repair costs will average 2% of sales. How much warranty expense should be accrued as a result of the 2012 sales of this product? a. $5,600 b. $2,800 c. No liability should be recorded until units are brought in for repairs. d. $8,400 Hide Feedback

a. $5,600

On the balance sheet, the cumulative amount of plant and equipment already expensed is reported in an account called a. Accumulated Depreciation b. Accumulated Amortization c. Amortization Expense d. Depreciation Expense

a. Accumulated Depreciation

A company's employees earn $5,000 per day, work 5 days per week (Monday through Friday), and get paid each Friday. If the previous payday was January 26 and the accounting period ends on January 31, what is the ending balance in the wages payable account? a. $9,000 b. $15,000 c. $25,000 d. $10,000

b. $15,000

This company purchased new excavating equipment at the beginning of 2012. The equipment has a cost of $37,000, an estimated life of 5 years, and an estimated residual value of $7,000. A full year's depreciation expense is to be recorded in 2012. The equipment was used 20,000 hours during 2012 and 24,000 hours during 2013. The number of expected hours over five years is 100,000. Refer to Falling Leaves Lawn Care. The company is comparing the straight-line and double-declining-balance depreciation methods. Of these two methods, which method creates the larger expense and larger tax savings in 2012? a. Straight-line depreciation creates both the larger expense and the larger tax savings. b. Double-declining-balance depreciation creates both the larger expense and the larger tax savings. c. Double-declining-balance depreciation creates the larger expense, while straight-line depreciation creates the larger tax savings. d. Straight-line depreciation creates the larger expense, while double-declining-balance depreciation creates the larger tax savings. Hide Feedback

b. Double-declining-balance depreciation creates both the larger expense and the larger tax savings.

Current accounting standards indicate that the costs of intangible assets with an indefinite life, such as goodwill, should a. be debited to an expense account entirely in the year in which acquired. b. not be amortized, but should be reviewed annually for impairment. c. be amortized over a reasonable period of time not to exceed 40 years. d. be reported on the statement of retained earnings in the year in which acquired.

b. not be amortized, but should be reviewed annually for impairment.

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and 26,000 hours in 2013. Refer to Fabian Woodworks. If the company uses the units-of-production method, what is the depreciation rate per hour for the equipment? a. $.12 b. $1.10 c. $.10 d. $1.00

c. $.10

During the first quarter of 2012, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%. Refer to General Lighting. The $150 price of each battery includes a $3 federal excise tax. Which of the following statements is true regarding the proper accounting treatment for the taxes related to this transaction? a. They are recorded as unearned revenues on the company's balance sheet. b. They are recorded as additions to revenue. c. They are recorded as a current liability owed to the taxing authority. d. They are recorded as expenses in the same period as the corresponding sales revenue.

c. They are recorded as a current liability owed to the taxing authority.

Goodwill can be recorded as an asset when a(n) a. business has above normal profitability compared to other businesses in its industry. b. business can determine that it has created customer goodwill and name recognition. c. business is purchased and payment is made in excess of the value of the net assets. d. offer is received to purchase the business at a price in excess of the value of the assets. Hide Feedback

c. business is purchased and payment is made in excess of the value of the net assets.

During the first quarter of 2012, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%. Refer to General Lighting. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. Which of the following records the sale of the batteries? a. Accounts Receivable 636,000 Sales Revenue 636,000 b. Accounts Receivable 600,000 Sales Revenue 600,000 c. Accounts Receivable 600,000 Sales Revenue 564,000 Sales Tax Payable 36,000 d. Accounts Receivable 636,000 Sales Revenue 600,000 Sales Tax Payable 36,000 Hide Feedback

d. Accounts Receivable 636,000 Sales Revenue 600,000 Sales Tax Payable 36,000 Hide Feedback

An oil company purchased 10,000 acres of land on January 1, 2011, for $5,000,000, on which it developed an underground oil site. The company spent $11,000,000 to prepare the site for operation but believes that 500,000 barrels of oil can be extracted from the site over five years after drilling begins. The land has a residual value of $250,000. Assuming 50,000 barrels of oil were extracted from the land in 2012, how much depletion would be recorded? a. $160,000 b. $157,500 c. $1,600,000 d. $1,575,000

d. $1,575,000

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and 26,000 hours in 2013. Refer to Fabian Woodworks. What amount will be reported as depreciation expense over the 5-year life of the equipment? a. $12,000 b. $4,000 c. $8,000 d. $10,000

d. $10,000

A company has current assets of $4,400, current liabilities of $2,750, and long-term liabilities of $5,500. If the operating cash flow ratio is 1.5, then cash flows from operating activities must be a. $6,600 b. $12,375 c. $8,250 d. $4,125

d. $4,125

Which of the following would appear on the balance sheet as a current liability? a. A lawsuit for $4 million for which the likelihood of loss is remote. b. A probable loss from a pending lawsuit, the amount of which is not yet determinable. c. A possible loss in the amount of $4 million from a pending lawsuit. d. A probable loss in the amount of $4 million from a pending lawsuit.

d. A probable loss in the amount of $4 million from a pending lawsuit.

A current liability includes obligations which must be repaid a. within one year or within the operating cycle, whichever is shorter. b. within one year. c. by the end of the operating cycle. d. within one year or within the operating cycle, whichever is longer.

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

Which of the following accounts would not be reported in the Property, Plant, and Equipment section of a balance sheet? a. Accumulated Depreciation--Buildings b. Buildings c. Land d. Depreciation Expense--Buildings

d. Depreciation Expense--Buildings

Operating assets with no physical properties are called a. current assets b. plant assets c. property, plant, and equipment d. intangible assets

d. intangible assets

GTX Corp. has $100,000 in cash, $40,000 in inventory, $25,000 in accounts payable and $15,000 in accrued liabilities (salaries, interest, taxes, etc.). If the company has $280,000 in cash flows from operating activities, what is its operating cash flow ratio? a. 0.5 b. 3.5 c. 7.0 d. 2.0

c. 7.0

Which of the following is not classified as a current liability account? a. Income taxes payable b. Salaries and wages payable c. Note payable, due in 2 years d. Accounts payable Hide Feedback

c. Note payable, due in 2 years

A company purchased land and incurred the following costs: Purchase Price $500,000 Excavation Costs 50,000 Razing Old Building 12,500 Broker Fees 10,000 Cost of a Parking Lot 25,000 What is the cost of the land? a. $597,500 b. $572,500 c. $562,500 d. $550,000

b. $572,500

During the first quarter of 2012, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%. Refer to General Lighting. Sales taxes are required to be paid to the state taxing authority at the end of the quarter. What is the amount of the current liability related to this transaction? a. $36,000 b. $600,000 c. $150,000 d. $636,000 Hide Feedback

a. $36,000

A company purchased a patent for $100,000 at the beginning of 2012 which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in 2012? a. $100,000 b. $5,000 c. $20,000 d. $0

c. $20,000

If a company's asset turnover ratio decreased from 2011 to 2012, which of the following conclusions can be made? a. The company was more efficient during 2012 in using its assets to produce profits b. The company over invested in assets in 2012. c. The company was less profitable in 2011. d. The company produced less sales in 2012 for each dollar invested in assets.

d. The company produced less sales in 2012 for each dollar invested in assets.

A company has cash of $800, current liabilities of $500, and long-term liabilities of $600. If the cash ratio is 2.5, then marketable securities must be a. $450 b. $800 c. $2,000 d. $700

a. $450

The total amount of interest that will be paid on a 5-year, $90,000 note payable at 11% simple annual interest is? a. $49,500 b. $1,980 c. $139,500 d. $9,900

a. $49,500

What is the impact on the accounting equation of recording the issuance of a short-term note payable? a. Both assets and liabilities increase. b. Both assets and stockholders' equity decrease. c. Both assets and stockholders' equity increase. d. Liabilities increase and stockholders' equity decreases

a. Both assets and liabilities increase.

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and 26,000 hours in 2013. Refer to Fabian Woodworks. Based on the information presented above, what method of depreciation will maximize depreciation expense in 2012? a. Double-declining-balance b. Straight-line c. All methods produce the same expense in 2012. d. Units-of-production

a. Double-declining-balance

Capitalizing an expenditure rather than recording it as a revenue expenditure a. impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period. b. impacts the amount of net income reported during an accounting period, but has no effect on the total book value of plant assets on the balance sheet. c. has no impact on the book value of plant assets on the balance sheet or the amount of income reported on the income statement. d. impacts the total book value of plant assets on the balance sheet, but has no effect on the amount of net income reported during an accounting period.

a. impacts the total book value of plant assets reported on the balance sheet and the amount of net income reported during a period.

On October 1st, a company borrowed $60,000 from Eighth National Bank on a 1-year, 7% note. If the company's fiscal year ends on December 31st, a year-end adjusting entry is required to increase a. interest payable by $1,050 b. interest expense by $4,200 c. notes payable by $1,050 d. prepaid interest by $3,150

a. interest payable by $1,050

This company purchased a truck at a cost of $12,000. The truck has an estimated residual value of $2,000 and an estimated life of 5 years, or 100,000 hours of operation. The truck was purchased on January 1, 2012, and was used 27,000 hours in 2012 and 26,000 hours in 2013. Refer to Fabian Woodworks. If the company uses the double-declining-balance depreciation method, what amount is the depreciation expense for 2013? a. $4,800 b. $2,880 c. $2,000 d. $1,728

b. $2,880

Fireworks City Information for 2012 and 2011 is presented below for this company which uses the straight-line depreciation method. 2012 2011 Property, plant and equipment $250,000 $190,000 Accumulated depreciation 100,000 85,000 Depreciation expense 62,500 47,500 Net sales 1,000,000 900,000 Total assets 625,000 475,000 Refer to Fireworks City. Determine the asset turnover ratio for 2012. a. 1.60 times b. 7.84 times c. 4.00 times d. 4.55 times

b. 7.84 times

What is the impact on the accounting equation of recording the accrual of interest expense? a. Both assets and liabilities decrease. b. Liabilities increase and stockholders' equity decreases. c. Both assets and stockholders' equity decrease. d. Liabilities decrease and stockholders' equity increases.

b. Liabilities increase and stockholders' equity decreases.

During the first quarter of 2012, the company sold 4,000 batteries on credit for $150 each plus state sales tax of 6%. Refer to General Lighting. What is the amount of the accounts receivable as a result of this transaction? a. $600,000 b. $36,000 c. $636,000 d. $150,000

c. $636,000

GT Company has $200 in cash, $500 in accounts receivable, and $700 in inventory. The company also has $200 in accounts payable and $200 in unearned sales revenue. What is the company's quick ratio? a. 2.25 b. 3.00 c. 1.75 d. 3.50 Hide

c. 1.75

The effect of recording depreciation for the year is a(n) a. decrease in net income and no change in assets. b. decrease in assets and a decrease in net income. c. decrease in assets but no change in owners' equity. d. increase in assets and an increase in net income.

b. decrease in assets and a decrease in net income.

This company has a weekly payroll of $10,000 for its employees who work Monday through Friday. Federal and state income taxes are withheld in the amounts of $1,700 and $400, respectively, and FICA taxes are withheld at a mandatory rate of 7.65% (6.2% for Social Security and 1.45% for Medicare). In addition, the federal and state unemployment taxes are applied at rates of 2% and 5%, respectively. The company's year-end is December 31. Refer to Gainesville Truck Center. Assuming December 31st falls on a Thursday, the year-end adjusting entry would a. increase wages payable by $2,000 b. decrease cash by $8,000 c. increase wages expense by $8,000 d. decrease wages payable by $2,000

c. increase wages expense by $8,000

The payment of Accounts Payable results in a(n) a. decrease in liabilities and increase in assets. b. decrease in both liabilities and assets. c. increase in liabilities and decrease in stockholders' equity. d. decrease in liabilities and increase in stockholders' equity.

b. decrease in both liabilities and assets.

A current liability is defined as a commitment or obligation which requires a company to transfer assets, create a new current liability, or provide services to another entity at some point in the future that must occur a. within one year or within the operating cycle, whichever is shorter. b. within one year or within the operating cycle, whichever is longer. c. by the end of the operating cycle. d. within one year. Hide Feedback

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

Depreciation is a. the difference between the original cost and salvage value of an asset. b. an accumulation of funds to replace the related plant asset. c. the cash allocated each period to maintain a plant asset. d. an effort to achieve proper matching of the cost of operating assets with related revenues.

d. an effort to achieve proper matching of the cost of operating assets with related revenues.

Depreciation is a process by which a. the difference between current market value and historical cost of plant and equipment. b. the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset. c. replacement funds are accumulated for plant and equipment. d. the decline in market value of plant and equipment is determined and recorded

b. the cost of plant and equipment is allocated to expense over the time periods which benefit from the use of the asset.