Accounting 201A Final Review 4

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.

$100,800.

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? $60,000. $50,000. $57,000. $59,000.

$59,000.

The original cost of a piece of equipment was $100,000. The equipment was depreciated using the straight-line method with annual depreciation of $20,000. After two years, the fair value of the equipment is $82,000. How much is the book value of the equipment at the end of the second year? $100,000. $82,000. $80,000. $60,000.

$60,000.

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year? $8,000. $5,000. $7,000. $5,500.

$8,000

Equipment was purchased for $50,000. At that time, the equipment was expected to be used eight years and have a residual value of $10,000. The company uses straight-line depreciation. At the beginning of the third year, the company changed its estimated useful life to a total of six years (four years remaining) and the residual value to $8,000. What is depreciation expense in the third year? $8,000. $5,000. $7,000. $5,500.

$8,000.

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

A contra-asset.

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

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

A gain of $5,000.

Equipment originally costing $95,000 has accumulated depreciation of $30,000. If the equipment is sold for $55,000, the company should record No gain or loss. A gain of $10,000. A loss of $10,000. A loss of $40,000.

A loss of $10,000

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

Accumulated depreciation.

Which of the following represents a characteristic of a liability? 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.

All of these are characteristics of a liability

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

An addition which increases future benefit.

Which of the following is not a current liability? Notes payable due in six months. Current portion of long-term debt. An unused line of credit. Deferred revenue to be earned in nine months.

An unused line of credit.

The current ratio is: Current assets divided by current liabilities. Current liabilities divided by current assets. Cash, short-term investments, and accounts receivable divided by current liabilities. Cash, short-term investments, accounts receivable, and inventory divided by current liabilities.

Current assets divided by current liabilities.

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should First State Bank record? 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.

Debit Notes Receivable, $5,000; Credit Cash, $5,000.

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: 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.

Debit interest expense and credit interest payable, $4,000.

Management can estimate the amount of loss that will occur due to litigation against the company. If the likelihood of loss is reasonably possible, a contingent liability should be Disclosed but not reported as a liability. Disclosed and reported as a liability. Neither disclosed nor reported as a liability. Reported as a liability but not disclosed.

Disclosed but not reported as a liability.

Which of the following intangible assets are not amortized? Goodwill. Patents. Copyrights. Franchises.

Goodwill.

Which of the following statements regarding liabilities is not true? Liabilities can be for services rather than cash. Liabilities are reported in the balance sheet for almost every business. Liabilities result from future transactions. Liabilities represent probable future sacrifices of benefits.

Liabilities result from future transactions.

Current liabilities May include contingent liabilities. Include obligations payable within one year or one operating cycle, whichever is shorter. Can be satisfied only with the payment of cash. Are preferred by most companies over long-term liabilities.

May include contingent liabilities.

Smith Co. filed suit against Western, Inc., seeking damages for patent infringement. Smith's legal counsel believes it is probable that Western will have to pay $125,000, although no final settlement has yet been reached. How should Smith report this litigation? As an asset for $125,000. As a gain for $125,000. As both an asset and a gain for $125,000. No asset or gain is reported.

No asset or gain is reported.

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

Ordinary repairs and maintenance

An exclusive 20-year right to manufacture a product or to use a process is a: Patent. Copyright. Trademark. Franchise.

Patent.

Which of the following is not recorded as an intangible asset in the balance sheet? Patents. Research and development. Trademarks. Goodwill.

Research and development.

The amount of the gain on the sale of equipment equals: 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.

The selling price minus the book value of the equipment.

Which of the following statements is false regarding the amortization of intangible assets? Intangible assets with a limited useful life are amortized. The service life of an intangible asset is always equal to its legal life. The expected residual value of most intangible assets is zero. Goodwill is the most common intangible asset with an indefinite useful life.

The service life of an intangible asset is always equal to its legal life.

Which of the following will result in higher depreciation expense in the first year of the asset's life? Short service life and high residual value. Short service life and low residual value. Long service life and low residual value. Long service life and high residual value.

Short service life and low residual value.

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? $900,000. $200,000. $180,000. $220,000.

$180,000.

A local Starbucks sells gift cards of $10,000 during the year. By the end of the year, customers have redeemed $8,000 of gift cards. What will be the year-end balance in the Deferred Revenue account? $0. $2,000. $8,000. $10,000.

$2,000.

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)? (Do not round intermediate calculations.) $0. $50,000. $200,000. $100,000.

$50,000.

Equipment originally costing $65,000 has accumulated depreciation of $25,000. If the equipment is sold for $30,000, the company should record: No gain or loss. A loss of $10,000. A gain of $10,000. A loss of $35,000.

A loss of $10,000.

Which of the following correctly describes the nature of depreciation? 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.

Depreciation represents the allocation of the cost of property, plant, and equipment over its service life.

In most cases, current liabilities are payable within ____ year(s), and long-term liabilities are payable more than ____ year(s) from now. one; two one; one two; two one; ten

one; one

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

Book value.

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

Current portion of long-term debt

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? $300,000 $450,000 $150,000 $600,000

$450,000

Travel Planners, Inc. borrowed $5,000 from First State Bank and signed a promissory note. What entry should Travel Planners record? 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.

Debit Cash, $5,000; Credit Notes Payable, $5,000.

Bryer Co. purchases all of the assets and liabilities of Stellar Co. for $1,500,000. The fair value of Stellar's assets is $2,000,000, and its liabilities have a fair value of $1,200,000. The book value of Stellar's assets and liabilities are not known. For what amount would Bryer record goodwill associated with the purchase? $800,000. $500,000. $700,000. $0.

$700,000.

A long-term asset is recorded at the: 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.

Cost of the asset plus all costs necessary to the asset ready for use.

Federal and state income taxes withheld by employers from their employees' payroll are initially recorded with a credit to a(n): Liability. Expense. Asset. Revenue.

Liability.