ACCT 201 M5 Quiz

Which of the following accounting treatments violates the expense recognition principle? -The seller records inventory in transit as Cost of Goods Sold when the terms are FOB shipping point. -A long-term asset is expensed over its useful life using one of the depreciation methods in accordance with GAAP. -Inventory is expensed in the period of the sale of the inventory. -More than one of these choices violates the expense principle. -A capital expenditure is recorded as an expense.

-A capital expenditure is recorded as an expense.

Why is Accumulated Depreciation on the balance sheet more than Depreciation Expense on the income statement in the subsequent years of an asset's useful life? -The company must have adjusted the useful life of the asset. -The company must have neglected to close its temporary accounts in the prior accounting periods. -Accumulated Depreciation is the dollar amount of life the asset has left. -Accumulated Depreciation accumulates and reports all of the asset's usefulness used since the asset was purchased.

-Accumulated Depreciation accumulates and reports all of the asset's usefulness used since the asset was purchased.

On January 1, Year 1, MachX, Inc., paid $90,000 cash for a machine with an estimated useful life of 5 years and a $10,000 salvage value. In December Year 2, the company decided that the machine's original estimated useful life of 5 years should be revised to a total of only 3 years (i.e., a remaining life of 2 years) with a $0 salvage value. Show the effect of the depreciation adjusting entry for Year 2 using straight-line deprecation given this change in estimate. -Assets -Liabilities -Shareholders' Equity A. (30,000) Accumulated Depreciation B. (30,000) Depreciation Expense C. (37,000) Accumulated Depreciation D. (37,000) Depreciation Expense E. (16,000) Depreciation Expense F. (24,666) Accumulated Depreciation G. (24,666) Depreciation Expense H. 0 No effect I. (46,000) Accumulated Depreciation

-Assets: C -Liabilities: H -Shareholders' Equity: D

What is book value (or net book value) of plant and equipment and on which financiaL statement is reported? -Book value is the difference between Accumulated Depreciation and market value, and it is reported on the income statement. -Book value is the difference between historical cost and Accumulated Depreciation, and it is reported on the balance sheet. -Book value is the difference between Depreciation Expense and Accumulated Depreciation, and it is reported on the balance sheet. -Book value is the difference between historical cost and market value, and it is reported on the balance sheet.

-Book value is the difference between historical cost and Accumulated Depreciation, and it is reported on the balance sheet.

Identify whether each item is an expense, a capital expenditure (an asset), or neither. Novel Tea, Inc., paid ______ -$5,000 to have its new equipment delivered to its factory -$3,000 to have the equipment installed -$1,000 for the electricity during the year to run its equipment

-Capital Expenditure (asset) -Capital expenditure (asset) -Expense

Identify whether each item is an expense, a capital expenditure (an asset), or neither. Riteon, Inc. paid ______. -$20,000 for research and development costs -$5,000 for the delivery of new machines -$30,000 for repairs to its older equipment

-Expense -Capital Expenditure (asset) -Expense

Classify each of the items below according to the section of a firm's financial statements in which it would be reported: -Land -Accounts Payable -Inventory -Equipment (Net of Accumulated Depreciation) A. Current Assets B. Noncurrent Assets C. Current Liabilities D. Noncurrent Liabilities E. Stock F. Revenues G. Expenses

-Land: Noncurrent asset -Accounts Payable: current liability -Inventory: current assets -Equipment (Net of Accumulated Depreciation): noncurrent asset

Planet of the Grapes, Inc., purchases an $80,000 truck with an estimated useful life of 5 years and no salvage value. Which of the following statements is TRUE regarding this truck? -More than one of these is true. -In the 5th year, when the truck is brought to the junkyard, the company should record an entry to expense $80,000 and reduce assets by $80,000. -The purchase of the truck is a capital expenditure. -The expense recognition (matching) principle requires the company to expense the entire $80,000 value of the truck in the year of purchase. -Depreciation causes Cash from Operating Activities on the statement of cash flows to decrease.

-The purchase of the truck is a capital expenditure.

French Confection, Inc., bought machinery at a cost of $48,000 at the beginning of Year 1. If its salvage value is $2,000 and its useful life is 10 years, what will the Depreciation Expense be for the second year if the straight-line method is used?

4600

Drain Surgeons Corporation purchased equipment for $45,000. Drain Surgeons also paid $1,400 for freight and insurance while the equipment was in transit. Sales tax amounted to $750. Insurance, taxes and maintenance for the first year of use was $1,500. How much should Drain Surgeons Corporation capitalize as the cost of the equipment?

47,150

Whittle, Inc., purchased the timber rights for $6,000,000 at the beginning of Year 1. It is expected to produce a total of 8,000,000 cords of wood over 4 years, after which it will be sold for $1,000,000. In Year 1, it cut 110,000 cords of wood. How much Depletion Expense should be recorded in Year 1 using the activity method?

68,750

Lumpsum, Inc., purchased land and two buildings at a total cost of $28,000. The appraised value for each item is as follows: Land $18,000 Building 1 $16,000 Building 2 $14,000 At what amount should Land be debited?

10,500

On-A-Roll, Inc., bought machinery at a cost of $25,000 with a salvage value of $7,000 and useful life of 10 years. Calculate Depreciation Expense on the income statement for the year ended Year 2 using the straight-line method.

1800

Whittle, Inc., purchased the timber rights for $7,000,000 at the beginning of Year 1. It is expected to produce a total of 1,000,000 cords of wood over 4 years, after which it will be sold for $1,000,000. In Year 1, it cut 420,000 cords of wood. How much Depletion Expense should be recorded in Year 1 using the activity method?

2,520,000

Lawn & Order Company purchased two pieces of equipment for $450,000. If the assets had been purchased separately, the company would have paid $200,000 for the first piece of equipment and $300,000 for the second piece of equipment. What amount should be recorded for the second piece of equipment?

270,000

Florist Gump, Inc., purchased a truck on January 1, Year 1, at a cost of $85,000. The truck has an estimated useful life of 5 years or 101,000 miles. The estimated salvage value is $15,000. In Year 1, the truck was driven 17,000 miles. In Year 2, the truck was driven 29,000 miles. Accumulated Depreciation using straight-line depreciation at December 31, Year 2, after two years of use, equals (rounded to the nearest dollar)

28,000

Florist Gump, Inc., purchased a truck on January 1, Year 1, at a cost of $89,000. The truck has an estimated useful life of 5 years or 112,000 miles. The estimated salvage value is $16,000. In Year 1, the truck was driven 20,000 miles. In Year 2, the truck was driven 25,000 miles. Accumulated Depreciation using straight-line depreciation at December 31, Year 2, after two years of use, equals (rounded to the nearest dollar) ______.

29,200

Given the amounts below, calculate the Total Cash from (for) Investing Activities on the Statement of Cash Flows: Cash Collected from Customers $500,000 Issuance of Stock $120,000 Purchase of Equipment $25,000 Proceeds from Sale of Land $60,000

35,000

Florist Gump, Inc., purchased a truck on January 1, Year 1, at a cost of $106,000. The truck has an estimated useful life of 5 years or 115,000 miles. The estimated salvage value is $13,000. In Year 1, the truck was driven 17,000 miles. In Year 2, the truck was driven 25,000 miles. Accumulated Depreciation using straight-line depreciation at December 31, Year 2, after two years of use, equals (rounded to the nearest dollar) ______.

37,200

Squid Roe, Inc., sold its $16,000 equipment with accumulated depreciation of $13,000 for $7,000. What is the amount of the gain or loss on this sale Squid Roe would record? DO NOT INCLUDE $ IN YOUR ANSWER. If the amount is a loss use a negative sign (not parentheses).

4,000

On January 1, Year 1, Florist Gump, Inc., bought machinery at a cost of $1,000 with a salvage value of $800 and useful life of 5 years. Calculate Depreciation Expense on the income statement for December 31, Year 2, assuming the straight-line method is used.

40

On January 1, Year 1, Brewed Awakenings, Inc., paid $53,000 cash for espresso machines with an estimated useful life of 5 years and $10,000 salvage value. What is Depreciation Expense for Year 1 if the straight-line method is used?

8,600

Lumpsum, Inc., purchased land and two buildings at a total cost of $28,000. The appraised value for each item is as follows: Land: $11,000 Building 1: $11,000 Building 2: $10,000 At what amount should Land be debited?

9,625

Which of the following accounting treatments is in accordance with the expense recognition principle? -A capital expenditure is expensed over its useful life. -Inventory is depreciated over its useful life. -A capital expenditure is expensed when acquired. -A long-term asset is expensed in the period acquired.

A capital expenditure is expensed over its useful life.

Classify each of the items below according to the section of a firm's financial statements in which it would be reported: Accumulated Depreciation Supplies Amortization Expense Sales, Net A. Current Assets B. Noncurrent Assets C. Current Liabilities D. Noncurrent Liabilities E. Revenues F. Expenses G. Stock

Accumulated Depreciation- Noncurrent asset Supplies- current asset Amortization Expense-expenses Sales, Net-revenue

A $100,000 truck was depreciated using straight-line and assuming a 5-year life and $10,000 salvage value. After 3 years, it was sold for $40,000 cash. The sale of the truck appears under A.___________ activities on the Statement of Cash Flows in the amount of B. $______________. Activity: Amount: A. $100,000 B. $60,000 C. $40,000 D. $18,400 E. $6,000 F. $(6,000) G. $(40,000) H. $(60,000) I. $(18,400) J.. Operating K. Investing L. Financing

Activity: K. Investing Amount: C. $40,000

During the year, Clean Dirt, Inc., recorded $80,000 for the CEO's salary as a capital expenditure. Determine whether this is the appropriate accounting treatment by showing the effect of this accounting treatment on the accounting equation. Assets are: Liabilities are: Shareholders' Equity is: A. Too High B. Correctly Stated C. Too Low

Assets are: A Liabilities are: B Shareholders' Equity is: A

Match each of the items below with the most appropriate description: Current Assets Noncurrent Assets Expenses Revenues A.Resources expected to be used or turned into cash within a year reported on the balance sheet B.Goods delivered or services performed during the accounting period reported on the balance sheet C.Goods or services consumed during the accounting period reported on the income statement D.Resources expected to be used over more than one year reported on the income statement E.Resources expected to be used or turned into cash within a year reported on the income statement F.Goods delivered or services performed during the accounting period reported on the income statement G.Resources expected to be used over more than one year reported on the balance sheet H. Obligations to be satisfied within one year reported on the income statement I.Goods or services consumed during the accounting period reported on the balance sheet

Current Assets-A Noncurrent Assets-G Expenses-C Revenues-F

On January 1, Year 1, Beauty & the Bistro, Inc., purchased a $160,000 machine with an estimated useful life of 10 years or 500,000 units and a $10,000 salvage value. The machine actually produced 150,000 units in Year 1 and 120,000 units in Year 2. Record the depreciation adjusting entry for Year 1 using the activity method:

Debit: Depreciation Expense 45000 Credit: Accumulated Depreciation 45000

On January 1, Year 1, The Merchant of Tennis, Inc., purchased a $600,000 machine with an estimated useful life of 10 years or 500,000 units and a $100,000 salvage value. The machine actually produced 150,000 units in Year 1 and 120,000 units in Year 2. Record the depreciation adjusting entry for Year 1 using the straight-line method:

Debit: Depreciation Expense 50000 Credit: Accumulated Depreciation 50000

On January 1, Year 1, Rex Carr's Driving School, Inc., purchased $400,000 of vehicles (Equipment) with an estimated useful life of 5 years or 500,000 miles and a $50,000 salvage value. The vehicles were driven 120,000 miles in Year 1 and 110,000 miles in Year 2. Record the adjusting entry to record depreciation for Year 1 using the straight-line method:

Debit: Depreciation Expense 70000 Credit: Accumulated Depreciation 70000

On January 1, Year 1, Fuzzy Side Up, a carpet manufacturer, purchased a $400,000 machine with an estimated useful life of 5 years or 500,000 carpets and a $50,000 salvage value. The machine actually produced 120,000 carpets in Year 1 and 110,000 carpets in Year 2. Record the depreciation adjusting entry for Year 1 using the activity method:

Debit: Depreciation Expense 84000 Credit: Accumulated Depreciation 84000

Which statement best describes the proper accounting treatment for long-term assets classified as Plant and Equipment? -Record them as revenues and expenses using the revenue and expense (matching) recognition principles. -Record them as expenses when purchased using the cost principle. -Record them as assets and then depreciate them over an estimated useful life. -More than one of these is true.

Record them as assets and then depreciate them over an estimated useful life.

During the year, Cycloanalysts, Inc., spent $1,000,000 on research and development (R&D) and capitalized the entire amount, intending to write it off over 5 years. This accounting treatment is ______. -incorrect. The company should record the expenditure as an asset -incorrect. The company should treat the entire amount as an expense -incorrect. GAAP requires that all R&D be written off over 40 years

incorrect. The company should treat the entire amount as an expense

A capital expenditure _________. -is debited to a long-term asset account is expensed immediately -is credited to a Shareholders' Equity account -more than one of these is correct -records additional capital

is debited to a long-term asset account

Treating a capital expenditure as an immediate expense ______. -overstates expenses and understates net income -overstates assets and overstates shareholders' equity -understates expenses and understates assets -understates expenses and overstates shareholders' equity

overstates expenses and understates net income