Accounting exam #3

Once cost is established for a plant asset, it becomes the basis of accounting for the asset unless the asset appreciated in value, in which case, market value becomes the basis for accountability

false

Unearned revenues should be classified as Other Revenues and Gains on the Income Statement

false

When purchasing delivery equipment, sales taxes and motor vehicle licenses should be charged to delivery equipment

false

When purchasing land, the costs for clearing, draining, filling, and grading should be charged to a land improvements account

false

a change in the estimated salvage value of a plant asset requires a restatement of prior years' depreciation

false

a corporation can issue more shares than it is authorized in its charter if the board of directors approves of an increase in the number of authorized shares

false

a corporation is not an entity which is separate and distinct from its owners

false

a corporation must be incorporated in each state in which it does business

false

a note payable must always be paid before an account payable

false

additions and improvements to a plant asset that increase the assets operating efficiency, product capacity, or expected useful life are generally expensed in the period incurred

false

as soon as a corporation is authorized to issue stock, an accounting journal entry should be made recording the total value of the shares authorized

false

current maturities of long term debt refers to the amount of interest on a note payable that must be paid in the current year

false

during the month, a company sells goods for a total of $108,000 , which includes sales taxes of $8,000; therefore the company should recognize $100,000 in sales revenues and $8,000 in sales tax expense

false

if a corporation pays taxes on its income the stockholders will not have to pay taxes on the dividends received from that corporation

false

in calculating depreciation, both plant asset cost and useful life are based on estimates

false

interest expense on a note payable is only recorded at maturity

false

the accumulated depreciation account represents a cash fund available to replace plant assets

false

the acquisition of treasury stock by a corporation increases total assets and total stockholders' equity

false

the declining balance method of depreciation is called an accelerated depreciated method because it depreciates an asset in a shorter period of time than the asset's useful life

false

the depreciable cost of plant assets is its original cost minus obsolescence

false

the higher the sales tax rate, the more profit a retailer can earn

false

the market value of a corporations stock is determined by the number of shares that the corporation has been authorized to used

false

treasury stock purchased for $25 per share that is reissused at $20 per share, results in a loss on sale treasury stock being recognized on the income statement

false

using the units of activity method of depreciating factory equipment will generally result in more depreciation expense being recorded over the life of the asset than if the straight line method had been used

false

with an interest-baring note, the amount of cash received upon issuance of the notes generally exceeds the notes face value

false

working capital is current assets divided by current liabilities

false

to determine a new depreciation amount after a change in estimate of a plant assets useful life, the assets remaining depreciable cost is divided by its remaining useful life

true

treasury stock should not be classified as a current asset

true

treasury stockis a contra stockholders equity account

true

under the double declining balance method, the depreciation method on the tax return that is used in preparing financial statements

true

when no par value stock does not have a stated value, the entire proceeds from the issuance of the stock becomes legal capital

true

the par value of common stock must always be equal to its market value on the date the stock is issued

false

the relationship between current liabilities and current assets is important in evaluating a company's ability to payoff its long term debt

false

land improvements are generally charged to the Land account

false

metropolitan symphony sells 200 season tickers for $50,000 that represents a five concert season. The amount of Unearned Ticket Revenue after the second concert is $20,000

false

most notes are not interest baring

false

stock can be issued only in exchange for cash

false

the book value of a plant asset is always equal to its fair market value

false

a corporation acts under its own name rather than in the name of its stockholders

true

a corporation can be organized for the purpose of making a profit or it may be not for profit

true

a proxy is a legal document that instructs a stockholders agent how to vote shares of stock for the stock holder

true

current liabilities are expected to be paid within one year or the operating cycle, which ever is longer

true

interest expense is reported under Other Expenses and Losses in the income statement

true

notes payable are often used instead of accounts payable

true

preferred stock has contractual preference over common stock in certain areas

true

recording depreciation each period is an application of the expense recognition principle

true

salvage value is not subtracted from plant asset cost in determining depreciation expense under the declining balance method of depreciation

true

the current ratio permits analysts to compare the liquidity of different sized companies

true

the par value of stock issued for non-cash assets is never a factor in determining the cost of the asset received

true

a current liability must be paid out of current earnings

false

All plant assets (fixed assets) must be depreciated for accounting purposes

False

the four subdivisions for plant assets are a.land,land improvements,buildings,and equipment b.intangibles,land,buildings,and equipment c.furnishings and fixtures, land, buildings, and equipment d.property,plant,equipment,and land

a. land, land improvements, buildings, and equipment

the chief accounting officer in a company is known as the a.controller b.treasurer c.vice president d.president

a.controller

most companies pay current liabilities a.out of current assets b.by issuing interest bearing notes payable c.called the matching principle d.useful in determining the amount of a company's long term debt

a.out of current assets

twp ways that a corporation can be classified by ownership are a.publicly held and privately held b.stock and non stock c.inside and outside d.majority and minority

a.publicly and privately held

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

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

all of the following are reported as current liabilities except a.accounts payable b.bonds payable c.notes payable d.unearned revenues

b.bonds payable

the two ways that a corporation can be classifed by purpose are a.general and limited b.profit and not for profit c.state and federal d.publicly and privately held

b.profit and not for profit

stockholders of a corporation directly elect a. the president of the corporation b.the board of directors c.the treasurer of the corporation d.all of the employees of the corporation

b.the board of directors

which one of the following items is not considered a part of the cost of a trunk purchased for business use? a.sales tax b.trunk license c.freight charges d.cost of lettering on side of truck

b.truck license

the relationships between current liabilities and current assets is a.useful in determining income b.useful in evaluating a company's liquidity c.called the matching principle d.useful in determining the amount of a company's long term debt

b.useful in evaluating a company's liquidity

the entry to record the issuance of an interest bearing note credits notes payable for the notes a.maturity value b.market value c.face value d.cash realizable

c. face value

in most companies, current liabilities are paid within a.one year through the creation of other current liabilities b.the operating cycle through the creation of other current liabilities c.one year of the operating cycle out of current assets d.the operating cycle out of current assets

c. one year or the operating cycle out of current assets

from a liquidity standpoint, it is more desirable for a company to have current a.assets equal current liabilities b.liabilities exceed current assets c.assets exceed current liabilities d.liabilities exceed long-term liabilities

c.assets exceed current liabilities

which of the following assets does not decline in service potential over the course of its useful life a.equipment b.furnishing c.land d.fixtures

c.land

liabilities are classified on the balance sheet as current or a.deferred b.unearned c.long-term d.accrued

c.long-term

the relationship of current assets to current liabilities is used in evaluating a company's a.operating cycle b.revenue-producing ability c.short-term debt paying ability d.long-range solvency

c.short term debt paying ability

the dominant form of business organization in the united states in terms of dollar sales a.sole proprietorship b.the partnership c.the corporation d.not known

c.the corporation

under the corporate form of business organization a. a stockholder is a personally liable for the debts of the corporation b.stockholders acts can bind the corporation even though the stockholders have not been appointed as agents of the corporation c.the corporations life is stipulated in its charter d.stockholders wishing to sell their corporation shares must get the approval of other stockholders

c.the corporations life is stipulated in its charter

the cost of a purchased building includes all of the following except a.closing costs b.real estate brokers commission c.remodeling costs d.all of the above

d. all of the above

which one of the following is a privately held corporation a.intel b.general electric c.caterpillar inc d.cargill inc

d. cargill inc

a company purchased land for $80,000 cash. Real estate brokers' commission was $5000 and $7000 was spent for demolishing an old building on the land before construction of a new building could start. Under the cost principle, the cost of land would be recorded at a.$97,000 b.$80,000 c.$85,000 d.$92,000

d.$92,000

a factor which distinguishes the corporate form of organization from a sole proprietorship or partnership is that a a.corporation is organized for the purpose of making a profit b.corporation is subject to more federal and state government regulations c.corporation is an accounting economic entity d. corporations temporary accounts are closed

d.corporations temporary accounts are closed

which one of the following would not be considered an advantage of the corporate form of organization a.limited liability of owners b.separate legal existence c.continuous life d.government regulation

d.government regulation

which of the following is usually not an accrued liability a.interest payable b.wages payable c.taxes payable d.notes payable

d.notes payable

FICA taxes withheld and federal income taxes withheld are mandatory payroll deductions

true

Notes payable usually require the borrower to pay interest

true

Recording depreciation on plant assets affects the balance sheet and the income statement

true

The IRS does not require the taxpayer to use the same depreciation method on the tax return that is used in preparing financial statements

true

a $60,000 , %8, 9-month note payable requires an interest payment of $3,6000 at maturity

true

a change in the estimated useful life of a plant asset may cause a change in the amount of depreciation recognized in the current and future periods, but not to prior periods

true

a company whose current liabilities exceed its current assets may have a liquidity problem

true